Savings for non-tax payer

[Deleted User]

I have a Cash ISA but, having completed my latest tax return, I am no longer liable to pay tax.

Would it be better to keep the ISA but look for a savings account for future savings?

Baldur

Abrielle wrote: »

I have a Cash ISA but, having completed my latest tax return, I am no longer liable to pay tax.

Would it be better to keep the ISA but look for a savings account for future savings?

Is your non-taxpayer status likely to be long term or not?

JimmyTheWig

If you can get a better rate in a non-ISA account than an ISA account then you're best off going with the ISA. Unless...

* You are likely to become a tax-payer in the future AND
* You have more than a year's ISA allowance in the account.

The point is that if you want to put it back into an ISA in the future (e.g. if you become a taxpayer) then there is a limit to how much you can put in each year. If your savings are below that limit then that's fine. But if you're above the limit then you may want to keep the money in the ISA for that point in time.

[Deleted User]

I think it unlikely that I shall become a taxpayer in the future - mainly because of the personal allowance based on age and because I only work part time. I have just opened a cash ISA with Halifax and transferred last year's and the previous year's ISA from A&L into it.

spikyone

There's no harm in having both types of account. The best ISAs generally have a better rate of interest than the gross rate on equivalent savings accounts, so it would be beneficial to use your ISA allowance first, then put any excess you may have into a 'normal' savings account.

The other option you should consider, if you won't need as much access to the money, is a regular saver account. The best paying RS accounts are 4% for a year, which currently beats all instant access and one-year fixes on both ISAs and savings accounts.
:money:

[Deleted User]

Thank you. I don't think I would be able to save enough on a regular basis for one of those.

dtsazza

Depending on the amounts, you could take the payments out of your ISA and put them into the regular saver. This is definitely worthwhile if the RS interest rate is higher than your ISA (and if you're happy that the tax-free status of ISAs is unlikely to be relevant in the future, as described above).

If you have even the most modest of amounts in your ISA you should be able to meet the requirements. For example, First Direct's 8% regular saver can be funded with as little as £25/month, so you'd only need £300 in savings to be able to operate one of these for its 12 month term. (£3,600 would let you fill it up to the max, which makes sense at that interest rate!)

JimmyTheWig

Abrielle wrote: »

I think it unlikely that I shall become a taxpayer in the future

In which case forget about the tax-free status of ISAs.
When comparing accounts, simply compare gross interest as that's what you'll receive.
(You'll need to inform the bank that you're not a tax payer to receive gross interest on a non-ISA account. Otherwise they'll still take tax and you will have to reclaim it from the taxman at the end of the tax year.)

TCA

Apologies in advance for tagging on a new question but it probably doesn't warrant a fresh thread. Anybody got any suggestions for the following?:

Non-UK resident, non UK tax payer (mid 40's, British citizen) with UK savings earning gross interest just under the current personal allowance. Soon to be gifted a sum of around £50,000 and wondering how best to save this in the UK.

Income from this new cash is not required and would be looking to earn 5%+ p.a. in line with current long term fixed rate savings accounts (5 years). Money could be left without access for this kind of period. New ISA contributions not permitted as non-UK resident, no tax relief available in new country of residence and no investment opportunities there either, so safe UK investment/savings desired.

Given the threshold for taxable income would be breached, are they any better alternatives to generate this required rate of return with little or no risk?

I realise that 5% interest on this next £50k of savings income would probably fall into the 10% bracket (as no non-savings UK income) but annual self-assessment forms would rather be avoided having just come out of the system. So far sake of argument let's say further cash would follow in subsequent years which would definitely generate income in the 20% tax bracket.

Any tips? Thanks.

lisyloo

You could consider NSI index linked savings certificates.
These are currently paying RPI+0.5% after 5 years.
RPI is currently 5.2% but of course it could change.

The advantages for you are:
No tax.
Completely safe (underwritten by HM govt)
Linked to inflation so your money is guaranteed to increase in real terms.

The downsides are that there is no guarnatee on RPI+0.5% will reach your 5% target (but if it's less then it means inflation is low).
Only £15K allowance per issue, so you will have to wait a few months for a new issue and they could be withdraw.

TCA

Thanks for the reply lisyloo. NSI index linked savings certificates are something I've looked at but everything I read tends to indicate that inflation will start coming down sooner rather than later. Point taken re the protection of real buying power but I don't live and spend in the UK, so this is perhaps of less concern to me.