Income Tax on Savings + advice on safe(ish) capital growth

bloomsberg78

Hi all,
have done ok in the house market and on the stock market over the last few years. I have sold my house late last year and today have sold a fair portion of my stock market investments.

My temporary plan is to put the money into high interest savings accounts, which leads me to a potential problem and a question!

I'm currently in the 20% Tax Band, but not a million miles away from the 40% band. What happens if my interest from my saving exceeds + my salary exceeds the 40% limit? Do I end up having to pay 40% on the whole of my savings? or just on the portion that exceeds this limit?

The other thing I am looking at is finding a low risk investment vehicle that gives me capital growth. For example are bonds and gilts subject to capital growth or income tax.

As you can see, i'm completely confused

DocProc

Do you fill in a Tax Return every year? I ask this because not everyone does.

If the answer is 'No' then I can see why you would have a difficulty in first declaring, and then eventually paying the extra tax, if any.

Obviously, if you are an employee and on PAYE and always under the taxable gains limit from a CGT viewpoint, this problem wouldn't have previously arisen?

CLAPTON

you are only taxed at 40% on the amount over the 40% band and not on the total amount so you can have an income of 39825 before paying 40% tax on the excess.

there are no low risk investments that guarentee capital growth.


you dont say if you want instant access to the money.. this is of key importance

if you want safety then put it in either saving a/c (but remember the effects of inflation) or a government index linked bond (limited to 15k per issue)

bloomsberg78

DocProc wrote: »

Do you fill in a Tax Return every year? I ask this because not everyone does.

If the answer is 'No' then I can see why you would have a difficulty in first declaring, and then eventually paying the extra tax, if any.

Obviously, if you are an employee and on PAYE and always under the taxable gains limit from a CGT viewpoint, this problem wouldn't have previously arisen?

I'm an employee and am on PAYE. The last few years I've had to do Tax Reason. The reason this year is because I disposed of more £40k of investments (even though I know the profit is under the CGT allowance) and so the taxman has invited me to fill one in and the 2 years previous to that I had to do one because I had a BTL property and had to declare the additional income.

bloomsberg78

CLAPTON wrote: »

you are only taxed at 40% on the amount over the 40% band and not on the total amount so you can have an income of 39825 before paying 40% tax on the excess.

there are no low risk investments that guarentee capital growth.


you dont say if you want instant access to the money.. this is of key importance

if you want safety then put it in either saving a/c (but remember the effects of inflation) or a government index linked bond (limited to 15k per issue)

My goal has been to get myself into a position where in a near enough position to buy a family home outright (hopefully outright without a mortgage). (am now renting after selling the 2 properties I had) I know I have taken risks with my capital over the last few years, but I judged those risks v reward to have been worth it and on the whole have been right.

Right now i'm jittery about the short term prospects of the housing market and the stock market and therefore feel the risk v reward in both these classes are out of kilter.

I will certainly look at goverment index linked Bonds - thanks for that, and yes until the future becomes a little more clearer I feel that savings account with at least some access to some of the money is probably the way to go. I like to keep some access to my money incase a new opportunity does present itself.

When I mentioned about looking at an investment with low risk, I did mean I was happy to take some risk with my capital, but would need understand what those risks would be and what factors (economic or otherwise) could adversely affect its performance. So any other ideas would be appreciated.

JDinho

CLAPTON wrote: »

if you want safety then put it in either saving a/c (but remember the effects of inflation) or a government index linked bond (limited to 15k per issue)

Presumably you mean NS&I Index Linked Savings Certificates, there is no limit on what you could invest in UK Government Index-Linked Gilts?

bloomsberg78

and just to add, I envisage that it's going to take 3-5 years to be in a position to buy a home outright. The exact timing depends on the performance of the housing market against how well I can save + the performance of my investments/savings.

So my money could be tied away for over 3-5 years.

CLAPTON

JDinho wrote: »

Presumably you mean NS&I Index Linked Savings Certificates, there is no limit on what you could invest in UK Government Index-Linked Gilts?

thanks for clarifying that and
yes indeed i did mean Index Linked Saving certificates .. Index Linked gilts can of course go down as well as up.

I'm not really sure that the OP really thinks about risk.. In my view much of the stuff about risk factors is pretty meaningless.. even if something is low risk and it goes down then the issues is how acceptable is that rather than the fact it was unlikely but its happened.

bloomsberg78

CLAPTON wrote: »

thanks for clarifying that and
yes indeed i did mean Index Linked Saving certificates .. Index Linked gilts can of course go down as well as up.

I'm not really sure that the OP really thinks about risk.. In my view much of the stuff about risk factors is pretty meaningless.. even if something is low risk and it goes down then the issues is how acceptable is that rather than the fact it was unlikely but its happened.

Yep, If I lose money on an opportunity that I had fully validated and assessed and I concluded that the chance of reward was good and the risk of something going wrong was low (of course excluding major unpredictable events that can upset markets) then of course I wouldn't be happy but would take it on the chin. Things I take on board when considering risk are current market conditions (i.e are we at record highs = don't buy), Market History (i.e over time does a particular asset class generally perform better than a savings account), likely affect on investment in current and predicted future economic conditions, etc, etc, but this is going slightly off topic.