Paying into Fixed Rate ISA & Mucked up Access to Interest

[Bump2024]

Hi

This is more of a sounding board but am hoping somebody may be able to help!

I have various fixed rate bonds as well as a fixed rate ISA but think I've messed up on when I can access the interest. For transparency, I am currently just under the threshold of a higher rate taxpayer, but will likely go to over £50k later this month through a promotion. I therefore had the £1k limit in mind. I essentially have two areas to address that I am trying to work out!

1. Vanquis Fixed Rate Bonds

I have 2 Vanquis fixed rate bonds.

One is a 3YR fix with £10,000 paying 5% that I took out in November 2022 and is due to mature in November 2025, so £500 interest due per annum. I set up that the interest would be reinvested into the account but didn't realise that there is a difference between when you can 'access it'. I can however change this for future interest to either be paid annually to my designated bank account or monthly.

I also have a 1YR fix with £5,500 paying 4.2% that is due to mature at the end of February 2024, so £231.00 interest due. This isn't a problem as I am nowhere near £1k interest for this tax year.

So the problem is that £1,000 interest is due to be 'accessible' in the tax year of April 2025 - April 2026. I also have a few other savings accounts that are maturing during the next tax year (2024-2025) so would likely want to re-invest them.

I think my only option is to change my preferences on Vanquis for the 3YR fix now so that I get the interest paid monthly to avoid the £1k tax paid in the 2025-2026 tax year.

1. Paying into an existing Fixed ISA

I can't seem to get a clear answer on this one. I have a Virgin Money 2YR Fixed Rate ISA paying 4.36% which was opened October 2022 therefore it is due to mature October 2024. I have until April this year to use my £20,000 tax free limit (I could probably save the £13,000 that is held in other fixed rate accounts and my NS&I before April. But, my question is because it is a fixed rate ISA, Virgin have indicated I cannot pay any further funds into it before maturity. If this is the case, I will put £4,000 into my L-ISA and get the £1,000 government top up.

Thank you if you got this far!

If I've understood your dilemma correctly -

1.I believe opting to change the frequency of interest payments into a separate account from the Vanquis Fixed rate bonds would ensure all the tax on interest would not become due at maturity, so that sounds a good solution.

2.A fixed rate ISA usually means you cannot add more funds after opening. However, as the Virgin Money ISA was opened in October 2022, you could open another ISA for 2023/24 (fixed or otherwise). I'm unsure what the issue is with that?
(Shawbrook 1Year fixed rate 5.01%; or Post Office online fixed rate ISA 5%;
Melton Mowbray 2Year fixed rate ISA 4.95%). Opening a LISA would use part of your ISA allowance for the current financial year, but the rest could also be utilised in an ISA.

Also - if you are just going over the £50K salary limit - could you add more to your pension to reduce taxable income temporarily?
This HMRC advice forum seems to suggest so, if you read the last two admin replies (though even some at HMRC don't seem to be understanding the rules, judging by their first reply!).

https://community.hmrc.gov.uk/customerforums/pt/751c7ae8-a6bd-ed11-9ac4-00155d975688

If you haven't done so already you might want to investigate in more detail the concept of a savings ladder, which appears to be what you are attempting to achieve. It is a useful strategy to enable filtering of savings into ISAs over time.

(I'm not a financial adviser, so please rely on your own research).