32% tax on savings interest?

jem16

lisyloo wrote: »

Good advice, but as a 40 %er like you then I've always been very keen to avoid it.

This is where the pension is the best wrapper to use provided you do not end up with too much income that sees you pay 40% tax in retirement too.

Mikeyorks

jem16 wrote: »

.... provided you do not end up with too much income that sees you pay 40% tax in retirement too.

..... it's not an awful dilemma to contemplate?

Unfortunately if you want to catch up on all those things you didn't have the time to do when working - you need an income that comfortably neutralises the age related portion of the personal allowance!

jem16

Mikeyorks wrote: »

..... it's not an awful dilemma to contemplate?

More from the point of view that higher rate taxpayer whilst working and higher rate taxpayer in retirement then you don't get so much out of the tax relief.

However higher rate taxpayer whilst working and basic rate taxpayer in retirement means an instant 20% benefit as far as pensions are concerned.

Unfortunately if you want to catch up on all those things you didn't have the time to do when working - you need an income that comfortably neutralises the age related portion of the personal allowance!

Doesn't need to come from taxable pension income though.

zagfles

jem16 wrote: »

More from the point of view that higher rate taxpayer whilst working and higher rate taxpayer in retirement then you don't get so much out of the tax relief.

However higher rate taxpayer whilst working and basic rate taxpayer in retirement means an instant 20% benefit as far as pensions are concerned.

Or even 25%, as it's only 15% tax on the way out at the moment (since you can take a quarter tax free).

lisyloo

..... it's not an awful dilemma to contemplate?

No it's not but you do need to balance this against:

1) In order to do this you need to tie up your money until retirement so there is a significant restriction.
2) You will be restricted in how you get taxed and how you can take your income (annuity, drawdown etc.) depending on the laws/rules at the time which we don't know.

Personally like Jem I think it makes a lot of sense to ideally claim back ALL of you 40% tax relief, but after than point the benfits are marginal for the restrictions.
You may fall on hard times e.g. get ill, or possibly want to start a business where you want to use some cash, therefore it makes sense not to have ALL your money tied up.
A balanced appraoch is best IMO although I recognise the benefits.

aspiration_2

lisyloo wrote: »

".... my next port of call would be to invest and use the CGT allowance and then "bed and breakfast" each tax year to utilise the £10K CGT allowance."


I know about bedding shares to be moved in to ISAs, avoiding dealing costs. But after ISAs are done how does one do "bed and breakfast" thing to avoid tax ?

lisyloo

But after ISAs are done how does one do "bed and breakfast" thing to avoid tax ?

You cannot now do Bed & Breakfast (the next day) as HMRC now make you wait 30 days.
So you have two choices.
You can either do it with a 30 day gap and risk a move in share price.
Or you can do "bed & spread" which means buying a different but similar share e.g. selling BP and buying Shell.

What you would do is sell your investments to crystallise gains of less then the CGT allowance.
Then buy back (either something else or wait 30 days) to "rebase" the purchase price for CGT.
This way you can utliise tax free gains of around £10K per year.

YOu can do "bed & spouse", "bed & isa", "bed & sipp", "bed & spread" or simply wait the 30 days,

Liloly

Going back to the original posts regarding 32% savings tax, I found something in the Mirillees review about this which is where the analgamation of tax/ni is recommended.

I have interpreted what he is saying as ordinary bank and building society interest returns are treated very harsly in the current regime and that the return is only really at or below the level of inflation therefore there is no real return.

http://www.ifs.org.uk/mirrleesreview/design/ch20.pdf

Therefore he is recommending that these be taken out of taxation as a straigtforward simplification measure as I read it.
Feel free to correct me if I have interpreted that wrongly.

cepheus

This did occur to me when I first heard of it. However a 32% tax on savings would be politically unfeasible to conservative voters. They have had different income tax rates on saving and earnings income so why not now?

I notice thisismoney is lobbying for NS&I Index linked bonds to be returned.

gadgetmind

lisyloo wrote: »

I think if I was beyond ISA limits, my next port of call would be to invest and use the CGT allowance and then "bed and breakfast" each tax year to utilise the £10K CGT allowance.

Yup, that helps, and I have my CG juggling planned until 2016, at least I have unless someone goes changing the rules again.