While it’s true that a joint account will automatically pass to the surviving spouse under right of survivorship, if the survivor would inherit the capital anyway, the time delay in having access to those funds, if invested differently, would only be as long as it took to obtain probate - which is about twelve weeks from the date of application.
Not using ISAs means you are potentially losing out on tax free interest on savings of £40,000 (£20,000 each a year), say at 5% £2,000. Earning the same interest in an taxable account split 50:50 and it’s going to be covered by the £1,000 a year Personal Savings Allowance each (for basic rate tax payers) but if you have more than say £40,000 in taxable account(s) then you are going to be paying some tax which you might have saved.
From what you have said about each of you having a tax liability on your 50% share of the joint interest makes me think you have.
Interest rates were at record lows for fourteen years beween 2008 and late 2022 so savers were getting negligible returns. It's the increase in rates since then that is giving rise to tax liabilities - as you said in your opening post. It's why banks - especially the challengers - were offering such good rates on ISAs and other fixed term investments from around October-November 2022.
It's up to you how you organise your finances, of course, but I would certainly be looking at the tax savings benefits of ISAs over probate concerns. You could each put in £20,000 now and another £20,000 each on 6 April 2025.
Moneysavingexpert on best cash ISAs.
www.moneysavingexpert.com/savings/best-cash-isa/
