Is an ISA best if you don’t pay tax?

[PersephoneParlormaid]

DD is at Uni and doesn’t work, so pays no tax. She’s getting an inheritance soon. Is an ISA best or, as she doesn’t pay tax, is a high interest account OK ?
She doesn’t want a LISA

She doesn't need the tax free status now,but can slowly get the whole inheritance invested in a tax free wrapper. Best to do it now, rather than when her income is sufficient for tax to be a reality.

What’s the starting rate of tax at 0%? You start paying tax at 20% once you exceed your personal allowance.

I disagree, although it depends on the plans.

she’s young. 7k in a stocks and shares ISA could end up being worth quite a bit more if she is looking to leave it long term.

if she just wants somewhere to park it for a year or so just pick whatever’s offering g the highest interest with terms that suit. If that’s an isa then that’s the best place for it- there are ISA’s where you can withdraw whenever you want, so no different to any other savings vehicle with the tax bonus.

No, there's an extra £5k "personal savings allowance" to cover interest if there's no other income such as wages exceeding the £12,570 personal allowance. So someone with no other taxable income can earn up to £18,570 before the interest becomes taxable, and then it's only the excess over the £18,570.

Ah ok, thanks for this.

@taxguru You might be able to answer a question I’ve been thinking about for a while. I earn £72k but most of that goes into my pension (employer and employee contributions together are £60k). So my taxable income is very low.

For the purposes of the personal savings allowance etc is my income the total £72k or is it just my taxable income?

Just your taxable allowance.

There's some weird thing about the order in which they get reported, but as long as you're well under the higher rate it'll be fine.

Income I meant, sorry, confusing.

Only if your income over £17,570 pa. Below this level you also have a Starting rate for savings of up to £5K.

From the government website; www.gov.uk/apply-tax-free-interest-on-savings

Personal Allowance
You can use your Personal Allowance to earn tax-free interest if you have not used it up on your wages, pension or other income.
Starting rate for savings
You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.
If your other income is £17,570 or more
You’re not eligible for the starting rate for savings if your other income is £17,570 or more.