Innovative saving ideas

shrub100

My girlfriend has just started work as a dentist and I am currently researching the best ways to save her tax money. Essentially as she is self employed she will most likely have around 30k a year which she needs to save for tax purposes etc. This year (as she started in August) she will not have to make her 1st tax payment for well over a year opening up possibilities for annual interest savings accounts.

As a starter I was thinking of opening a cash ISA each and then bunging the rest into a decent eSavings account.

Does anyone do anything interesting with their tax money to get better returns on their investments? As this will be tax money we want err on the side of caution and therefore need to get the best return on a reasonably low risk strategy.

Thanks in advance for you advice,

Jon

Money_Grabber13579

Definately open up an ISA, if you're paying tax they're the best value acounts around! I assume she is not taxed at source, being self employed? i.e she isn't part of the PAYE scheme? If I'm not mistaken though, she'll still have to pay tax this year ( well April 09!) but she'll just not have as much to pay because only 3/4 of the year will have been worked.

What do you mean saving for tax purposes? And tax money? You aren't going to have to pay the whole 30k to the tax man! lol (near enough, but not quite!) A self assessment will have to be filled in, and then that will give you the amount of tax you have to pay. The rest is yours to do as you wish, where you'll only have to pay tax on the interest except ISA's. Remember the first £6035 (I think!) of income is tax free, so she'll have to pay 20% on the rest (About £4800 in tax).

As to savings, some good rates are still going, A&L e-saver offers 6.6% and fixed term bonds at 7% with UK banks are available, or other foreign banks may offer a bit more, but you'll have to decide what bank to put it in!

Lokolo

Yes as above would be the best way to go about things.

Only thing is you could obviously invest to try and get a better return but the only problem is that is will mainly require between 5-10 years minimum for a decent return. This is to even out any bumps and hiccups along the way.

Generally on a shortterm and instant access way about things, savings are best.

Don't forget you both can open up ISAs, each year, so thats £7200 now for both, and in April another £7200. So thats £14k in tax free savings already!

Hungerdunger

FWIW, my wife and I have a large-ish Capital Gains Tax bill to pay at the end of January. We put the money in a Chelsea 90-day Notice Account, at 6.5%. I believe this is one of the better rates currently on offer, and although some people may find the 90 days notice a bit of an inconvenience, if you know on what date the tax is due, it's no problem to give them sufficient notice.

opinions4u

If you can build up funds in ISA and then not use these for paying the tax bill, you can soon get yourselves in a position where you have genuinely substantial tax free savings.

£3,600 x 2 people x 5 years = £36k plus interest tax free.

Other than that, your plan makes sense.

Just review rates regularly and be prepared to tart yourselves around for the best deal.

Do I get free cosmetic dentistry for that, or just a 'thanks'?

shrub100

Thanks for all your advice guys - it is great to be able to sense check my plans with others in the 'know'. To answer some questions:

So far we are under the impression that as she has only just changed her status to self-employed (having previously been on the Paye scheme) she wont have to pay her first tax bill tax until April 2010 - we will find out whether this is true or not when we see the accountant next week.

In terms of the 30k, alas that probably will all be given to the government in one way or the other. As a dentist she has quite a high income, and when you work out the tax rates, student loan payments and any NHS rebates for unused UDA points the amount we have to save is quite astonishing (but were not overly sad as the amount she clears is also very nice indeed ;-) )

Now a question from me regarding ISA. I understand that you are allowed £3600 every year but if you withdraw the money then you return back to an original £3600 of entitilement and have to build it up again from scratch. How does this system work? If I have 2yrs worth of entitlement ie. £7200, and I withdraw all the money in midway through the year and I then top it up again before the end of the year will I lose the full entitlement or not. Ie is your entitlement calculated on your end of year savings or savings at any given point?

Baldur

jonwestuk wrote: »

Now a question from me regarding ISA. I understand that you are allowed £3600 every year but if you withdraw the money then you return back to an original £3600 of entitilement and have to build it up again from scratch. How does this system work? If I have 2yrs worth of entitlement ie. £7200, and I withdraw all the money in midway through the year and I then top it up again before the end of the year will I lose the full entitlement or not. Ie is your entitlement calculated on your end of year savings or savings at any given point?

Your Cash ISA entitlement is £3,600 per tax year full stop. Any withdrawals cannot be replaced and lose their tax-free status.

Hungerdunger

opinions4u wrote: »

Do I get free cosmetic dentistry for that, or just a 'thanks'?

Neither by the look of it

Mikeyorks

jonwestuk wrote: »

she wont have to pay her first tax bill tax until April 2010 - )

31st Jan 2010. BUT ...... she will also have to find 50% of the first year liability as a payment on account of the following year. Followed by a further 50% on the next 31st July. Definitely something to watch for.

Saving for her liability in Cash ISAs is a bad idea. They're intended as long term saving vehicles ...... not to pay short term liabilities. You're better (as post #5) reconsidering that aspect and utilising something that doesn't essentially waste the tax free allowance by discarding it each year. Utilise the cash ISA by all means - but for longer term benefit.

Toothsmith

jonwestuk wrote: »

My girlfriend has just started work as a dentist and I am currently researching the best ways to save her tax money. Essentially as she is self employed she will most likely have around 30k a year which she needs to save for tax purposes etc. This year (as she started in August) she will not have to make her 1st tax payment for well over a year opening up possibilities for annual interest savings accounts.

As a starter I was thinking of opening a cash ISA each and then bunging the rest into a decent eSavings account.

Does anyone do anything interesting with their tax money to get better returns on their investments? As this will be tax money we want err on the side of caution and therefore need to get the best return on a reasonably low risk strategy.

Thanks in advance for you advice,

Jon

I have a flexible mortgage which I pay my tax money into. It then saves the mortgage interest, which will be at a higher rate than most deposit accounts.

Also, with it saving us interest rather than adding interest, there is no tax to pay on any accrued interest.

shrub100

Toothsmith wrote: »

I have a flexible mortgage which I pay my tax money into. It then saves the mortgage interest, which will be at a higher rate than most deposit accounts.

Also, with it saving us interest rather than adding interest, there is no tax to pay on any accrued interest.

Now that is a very good idea. I am looking to buy a place when the market properly bottoms out and this is definately something that I would be interested in doing.