Where to upt money - high rate taxpayers

lisyloo · 27 July 2012 at 9:07AM

Hi - just looking for some discussion on options.

We (married couple) are likely to have some spare money each month.
Cash ISAs are full.
S&S are receiving full allowance monthly.

We are higher rate tax payers.
I personally have quite a small remaining 40% band after my current pension contributions, whereas my husband has a lot of income taxed at 40% (this is relevant wrt pension tax relief).

We don't have any debt to pay off. We do have a mortgage but it's less than 1% so have no interest in paying that off short term.

So what are the options for us?
We could contribute more to pensions. This is certainly a good option with 40% tax relief on offer. I have not much higher rate tax relief to claim back but we could get round that by using my husbands pension (I'm fully aware of the risks for me there). This is something that will probably happen but pobably not for 100% of the spare money.

We could make some S&S investments outside the ISA as we have a CGT allowance we are not currently using.

What I was looking for was any other suggestions bearing in mind the 40% marginal tax rate and full ISA situation.

BTW - paying down the mortgage at 0.99% is an option as well, just trying to make the best of our money.

Thanks in advance

gadgetmind · 27 July 2012 at 12:55PM

Upping pensions is an obvious one for anything taxed at 40% as is putting max into S&S ISAs.

NS&I index linkers are the next obvious solution, or they would be if any were on sale! Keep an eye out for them coming back.

Other popular options for HR tax payers are VCTs, EIS, and (now) SEIS.

Good intro here on the latter -
http://monevator.com/what-are-enterprise-investment-schemes/

Note these are high risk and best for lump sums that you'd quite like back but can afford to lose.

Another good option is ITs such as Personal Assets Trust. These pay little out as dividends, which is good as you'd have to pay additional tax on these if outside basic rate bracket, but are good for preserving wealth. Note there are rumblings about dividends increasing, so maybe hold in your name and use pension contributions to keep well out of the 40% tax bracket.

Other ITs that do a similar job are RIT and Ruffer.

gadgetmind · 27 July 2012 at 3:23PM

BTW, Personal Assets has a monthly savings plan that lets you avoid stamp duty and spread. They also have a (unique?) scheme whereby you can later on decide to have a percentage of your holdings sold every year (presumably to use your CGT allowance) and sent as a cheque.

cloud_dog · 27 July 2012 at 4:02PM

You could as Gadget suggest increase your pension contributions and depending on your income and what you put in to the pension this may then take you out of the 40% tax bracket.

If you have sufficient room between your nett income and hte 40% bracket you could then consider putting all your non-ISA savings in to your name and not have to worry about additional taxation on those savings.

lisyloo · 27 July 2012 at 4:55PM

Thanks for your suggestions.
I am happy to contibute more to pensions but this is not a solution for 100% of spare income because of lack of access for decades.
I am aware of the advantages but this does have to be balanced by some liquidity.
It would be awful to fall on hard time or even want to extend the house or start a business and not be able to do so because all money is tied up for decades.
As always there has to be some balance.

There are no non-ISA savings to worry about.
It's all in ISAs or NSI linked savings certificates or offset against the mortgage so no income being paid.

lisyloo · 29 August 2012 at 1:54PM

I appreciate all of your input so I've come back to update.
I got a lot of feedback from another site suggesting that we were taking far too much risk with our S&S. We had £70K and just enough assets to cover our mortgage. The suggestion was that we should not be risking that much whilst we still had debt. We have taken that on board and we have moved £50K from S&S to cash.
So current situation is

Debt: £166K @ 0.99%

ISA cash: £76.5K @3.5%
Offset cash: £4K @0.99%
ISA S&S: £20K
NSI: £21K @RPI + something
Cash account: £51K @1.836% net

I will look into becoming a basic rate taxpayer next year, but it's a bit late this year as we are almost half way through.

mulronie · 29 August 2012 at 5:39PM

lisyloo wrote: »

Offset cash: £4K @0.99%
Cash account: £51K @1.836% net

Why are you offsetting that £4k? There's an arbitrage opportunity there, admittedly worth £35 a year but still, that's half a tank of petrol :money:

gadgetmind · 29 August 2012 at 6:26PM

mulronie wrote: »

that's half a tank of petrol

Yeah, I wish! It was over £120 the last time I filled up, but admittedly that was diesel.

Masomnia · 29 August 2012 at 7:10PM

Inflation is a risk too, Liss.

A tank of petrol in my 206 is about £50

:money:

opinions4u · 29 August 2012 at 7:39PM

Higher pension contributions. Will employer match contributions?

Payroll giving for charity. Then you can ignore the chuggers with a clear conscience.

Certain employee share schemes attract tax relief. Sharesave proceeds are free of income tax.

Ensuring you claim appropriate tax allowances for car use, work clothing etc if available.

Changing company car to a lower tax level at next renewal.

Maximising use of flex type employer packages to reduce tax or national insurance.

Lower risk stocks and shares ISA funds.

Taking bonuses annually as a lump sum rather than quarterly or monthly (can reduce NI costs, not tax).

lisyloo · 29 August 2012 at 10:17PM

Why are you offsetting that £4k?

We do spend money sometimes :-) occassionally buying holidays.
Yes it could be moved to the building society. Once the account is open I will check the withdrawal factilities. Currently I can tranfer it instataneously with faster payments.

Higher pension contributions.

It's under consideration, however as the government can change the rules on age, income tax, amount drandown etc. at any time then I feel there is a balance to be struck between the tax reflief and the lack of control. Some money outside of pensions is also useful.

Will employer match contributions?

Maximum already obtained.

Certain employee share schemes attract tax relief.

My employer is on the NASDAQ so it's a bit more complicated and there is a currency exchange risk too.

Ensuring you claim appropriate tax allowances for car use

Thanks for the tips but I don't have a car.

Maximising use of flex type employer packages to reduce tax or national insurance.

I don't have any options there except increasing pension contributions to reduce income tax on the building society cash.
That would be the tax tail waving the investment dog, but it's an option.

Taking bonuses annually as a lump sum rather than quarterly or monthly (can reduce NI costs, not tax).

I don't unfortunately have the power to tell my employer what to do. They are not particularly responsive to suggestions and they are US based.

Many thanks for your suggestions.

Where to upt money - high rate taxpayers

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