Non tax payers - still get a cash ISA?

SomersetSaver

I know I'm asking a potentially stupid question here, but I can't get my head round it so am prepared to look stupid in a public forum

I'm currently not paying tax as I've been made redundant and am going back to university to study full time. This is being funded by my redundancy payout and savings.

However, I'm hoping to still have some savings left at the end of it all - assuming it doesn't take me years to get a job (a big if, I know).

Therefore, even though I'm not currently a tax payer and won't be for 3 tax years, should I get a Cash ISA each year for my remaining savings anyway, to save the interest being taxed once I do become a tax payer again?

Just thinking that once the tax year has gone then I've lost that tax free allowance forever. And even if things don't go to plan and I need to cash them in then I've not lost anything.

Or have I really lost the plot and am missing something really obvious? Be gentle please if I have!

Thanks in advance for any advice.

bigfreddiel

SomersetSaver wrote: »

Therefore, even though I'm not currently a tax payer and won't be for 3 tax years, should I get a Cash ISA each year for my remaining savings anyway, to save the interest being taxed once I do become a tax payer again?

definitely yes - you've answered your own question - don't thow away 3yrs allowance - you'll never get it back -

Right now i'm about to retire with a small pension just about £1k over the allowance of £7475 so my tax bill will be about £200 fo the year - just imagine how much it would be if my £200k wasn't wrapped up in a isas and ilsc's - I reckon about £2k!

When I started I was saving about £30 a year in tax - it hardly seemed worth it - but now saving £2000+ per year is hugely satisfying.

I would also be putting something into a pension - so chekout sipps if you can afford it a little now is better than loads later on!

cheers

fj

kidmugsy

Agreed - Cash ISAs good. Plus, anything that you're prepared to tie up for more than one year, consider an Index-Linked Savings Certificate from ns&i. Pension - disagree: I recommend that you store your money until a future employer offers to make contributions to match, or better than match, yours. That's when to fling your money in.

SomersetSaver

bigfreddiel wrote: »

definitely yes - you've answered your own question - don't thow away 3yrs allowance - you'll never get it back -

Right now i'm about to retire with a small pension just about £1k over the allowance of £7475 so my tax bill will be about £200 fo the year - just imagine how much it would be if my £200k wasn't wrapped up in a isas and ilsc's - I reckon about £2k!

When I started I was saving about £30 a year in tax - it hardly seemed worth it - but now saving £2000+ per year is hugely satisfying.

I would also be putting something into a pension - so chekout sipps if you can afford it a little now is better than loads later on!

cheers

fj

Thanks, bigfreddiel, you've confirmed what I thought. Perhaps writing it down did help after all!

Seems like you've done really well with your money, to make sure your tax bill is so little; I'll have to take a look at that once I'm building up my savings again.

Not sure re pension - I put a chunk of my redundancy money into my corporate pension so had planned to leave that alone until I'm working again. Any "spare" money I might put into S&S ISA as that gives a bit more flexibility if I need the money again. Am getting twitching about using up a lot of my savings, so for peace of mind would like to be able to keep it accessible just in case!

SomersetSaver

kidmugsy wrote: »

Agreed - Cash ISAs good. Plus, anything that you're prepared to tie up for more than one year, consider an Index-Linked Savings Certificate from ns&i. Pension - disagree: I recommend that you store your money until a future employer offers to make contributions to match, or better than match, yours. That's when to fling your money in.

Thanks, kidmugsy. I did get some NS&I certs when they recently came out; tied up as much as I felt able to.

Admit I'm also ambivalent about the pension idea, as I said above. Will wait and see on that one, I think.

Cheers
SS

dtsazza

kidmugsy wrote: »

Pension - disagree: I recommend that you store your money until a future employer offers to make contributions to match, or better than match, yours. That's when to fling your money in.

That's a good thought about employer matching, although for most situations I don't think it would give a benefit in practice.

Most (all?) employers that contribute to a pension have an upper limit on their contributions (usually as a percentage of your salary) which tends to be quite low; e.g. single-figure percentages. Since this is free money, it would be silly not to take advantage of this anyway regardless of circumstances.

So if you're going to be contributing up to that level, having an extra lump sum ready to pay in doesn't make much difference as it won't be matched by the employer. And all things being equal, I'd generally prefer to have it in a personal pension with a provider of my choosing, rather than lumped in with whatever the company decided to go for.

Having said that, the main point is definitely always take advantage of the free "pay rise" of employer contributions. And if there is a chance that the employer's contribution limit will be higher than what you can afford to have deducted from your pay (unlikely, but possible) then having the lump sum available would be very beneficial.

bigfreddiel

kidmugsy wrote: »

Agreed - Cash ISAs good. Plus, anything that you're prepared to tie up for more than one year, consider an Index-Linked Savings Certificate from ns&i. Pension - disagree: I recommend that you store your money until a future employer offers to make contributions to match, or better than match, yours. That's when to fling your money in.

actually i agree about you disagreeing about a pension - i would only do it if and when my employer contributed as well - then its a viable option

cheers

fj

TCA

digressing slightly but this might also help the OP as it's a similar question. what would people recommend for someone currently a non tax payer but approaching the non taxable limit, and about to receive a lump sum of around £50,000? happy to tie the money away for up to 5 years, no regular income required from it and pensions and ISAs contributions are not an option. medium to low risk required. would it be better to stick the cash away at the best long term fix (currently 4.75% for 5 years) and start to pay tax at the lower rate, or is there a way to utilise a capital gains allowance (or some other means) to create a better net return with only a marginally higher risk?

calypso_rhapsody

TCA - have you looked at the NSand I index linked certs? - pay RPI plus 0.5% over 5 years with the option to get out penalty free after 1 year. Low risk and at least you are guaranteed an inflation plus tax free return.

Limited to £15k per person - but if you are married taht would be £30k and there is a way to have another £30k if you each hold a second certificate in trust for the other .... there is a thread on the main savings board about that. We've done it and it worked.

TCA

Thanks for the response calypso. Yes, I have looked at the NS&I index linked certificates. I'm just not confident that would return higher than 4.75% before basic rate tax over 5 years, although my knowledge of inflation is minimal and the option to get out after 1 year does appeal. The £15k limit won't help though unfortunately.

Ciaran124_2

TCA, Hi there I was looking into inflation rate compared to saving rates for this last while. And from what I understand

calypso_rhapsody wrote: »

TCA - have you looked at the NSand I index linked certs? - pay RPI plus 0.5% over 5 years with the option to get out penalty free after 1 year. Low risk and at least you are guaranteed an inflation plus tax free return.

Would be the most safest way to invest our money knowing that in some shape or form you will be making money and that it would be worth more after the 5 years.

For example
£30,000 invest in a 4.5% saving account for 5 years would say be £35630 (This is after tax) but because of inflation rate...... May not be worth £30,000 pounds 5 years before hand.

However simalar if inflation rate is only 2% on average over the 5 years this is like putting £30,000 into A cash ISA worth 2.5% £33,924.... However at least you know you money would be worth more than it would have been 5 years ago.

Just to also say I believe inflation rate is 4.2%... However not 100% sure on that, and hope this helps! :A