Thought: £9,000- The cost of a week off work....for life!

FiscalFox

Today i set up a mini-cash ISA. It pays 5% (Halifax). Today i have also been lucky enough to fill it up to the full £3,000 limit. I intend to do this every year. By April 6th 2007, my modest mathematics tell me it will contain around £9,475 with all that tasty interest accrued.

This amount of invested money will give me an annual tax free income of £470. (I'll also reinvest £20 to counter the effects of inflation)

That's the same as a week's salary, for life (or the life of the account) comparable to a £24,500 a year job! To me, that's not a bad, average wage to live on.

That's a whole week, for the rest of my life i never need work again!!

Consider: A small new car is bought for £9,000 or more. A two week cruise, maybe the same amount too. As soon as either is bought, it depreciates in value.

So, with £9,000, you can instead buy a modest week off work, for life. That's got to be better than a new Corsa, especially 10 years down the road when your car's rusty and worthless.

I decided i'd share this thought i just had, as it blew my mind!

I am determined to save as many blocks of £9,000 as possible. I know mini-ISA's are just one way....but of course the same could be done with a (taxable) fixed bond too...and more!

Getting financially independent one step at a time...

Number_6_3

I thought you could only invest £3000 per tax year tax free in a mini isa. In theory having £6000 at any one time. ie if you invested in April to March of one tax year and in April to March of the next...

R

carnet

Number_6 wrote:

I thought you could only invest £3000 per tax year tax free in a mini isa. In theory having £6000 at any one time. ie if you invested in April to March of one tax year and in April to March of the next...

R

The OP put in £3000 yesterday, can put in another £3000 anytime from 6 April 2006 to 5 April 2007 and a further £3000 on 6 April 2007, making a total of £9000 (plus accrued interest) by 6 April 2007 as stated.

michaels

FiscalFox wrote:

This amount of invested money will give me an annual tax free income of £470. (I'll also reinvest £20 to counter the effects of inflation)

I fear that with the RPI at 3% you will need to reinvest more than £20 to keep your capital owrth the same in real terms (I calc that the 3% above inflation you might earn will only be worth about 200 quid). However as the proportion of income that is taxed continues to climb the value of your tax free interest will go up relative to the amount you could get whilst working for a fixed period.

libra10

We went down the cash tax-free savings route, starting with a Tessa for my dh and myself, then following with cash ISA's.

The interest they earn each year will provide a real boost to our retirement.

FiscalFox

Hooray for the power of compound interest! I might just let the money in this account develop into my pension.

I am reading the "Fool's Guide to Investing", By Motley Fool. What a smashing book!

steady__eddie

yeahbutnotyeahbut, I appreciate what you're saying and that the interest from I.S.A.s is paid tax free but at retirement, isn't total income (including interest) subject to income tax ? So if your pensions and interest exceed your allowances (which shouldn't be too difficult if you have been in a decent company pension), you're going to be screwed up in the ind. rev. club or as usual, have I missed the plot ?

Milarky

steady__eddie wrote:

yeahbutnotyeahbut, I appreciate what you're saying and that the interest from I.S.A.s is paid tax free but at retirement, isn't total income (including interest) subject to income tax ? So if your pensions and interest exceed your allowances (which shouldn't be too difficult if you have been in a decent company pension), you're going to be screwed up in the ind. rev. club or as usual, have I missed the plot ?

No. Interest earned on cash ISAs is tax free - as is the interest on the reinvested interest. It remains tax-free irrespective of age and status. The only 'fly' in the ointment is that everyone assumes currently tax free ISAs will always remain tax free. In fact, they are not 'guaranteed' to last beyond 2010. Whilst is is possible that the 'loophole' of ISAs will be closed to future savings, it is unlikely, and still less likely that already held tax-free savings will be treated differently anyway. [Remember that old 'TESSAs' were allowed to be rolled up into tax-free ISAs whereas under the old rules they had to be paid out every five years.]

Stonk

It doesn't work quite so easily, unfortunately. You need to re-invest quite a lot of your interest (certainly more than £20) in order for your capital not to be eroded by inflation. If you do not inflate your capital, then you continue to earn the same £470 a year in interest for ever, and over time that is worth less and less, and no longer pays for your week off work.