Saving 125k - advice please?

RoxieW

Hello

I'd like to save 25K per year for the next 5 years, in order to pay off my mortgage. I can only overpay by 3k per year until Dec 2018.

My risk tolerance is low - I'd rather protect the money than risk it for the chance of making a bigger profit.

Any suggestions?

Another point is that I'm a company director and these savings are from the business profits. Is there any benefit to leaving the money in the business rather than taking it out to put into personal savings?

What would you do if you were wanting to put away 25k a year with a view to achieving a 125k target in 5 years time?

Thank you

eskbanker

If this money is currently company money you'd obviously need to transfer it from the company to yourself at some point, whether in the form of salary, dividends, etc, which will incur tax, i.e. £25K of company profits might only translate into £20K of net personal cash. My understanding is that there will typically be better savings arrangements available to individuals than businesses but there may be advantageous ways of using the company profits to have the money work better for you overall (tax breaks, etc) if it's still within the business initially, you'd really need to discuss with your accountant....

RoxieW

Hello - thanks for the reply

Yes I was assuming the 25k as a post-tax figure not pre-tax, but I was wondering about the potential company tax benefits. I will talk to my acc about this.


Thanks

greensmoker

Do you have a pension scheme set up? That's a great way to move money out of your business and save it tax free.

eskbanker

greensmoker wrote: »

Do you have a pension scheme set up? That's a great way to move money out of your business and save it tax free.

....but probably not a particularly likely way of achieving OP's objective of paying off a mortgage in five years' time, unless OP is approaching retirement age.

atush

But it might help pay it off later?

In the OPs case, as a CD, I'd be looking at saving into a pension. Of some amt of some kind, probably a lot (esp if you are a HRTaxpayer). The savings on tax, nics, and corportation tax are too large to ignore.

then pay off the mtg with whatever is spare from your salary/divs.

RoxieW

Thanks for replying - I'm 32 so a long way off retirement age yet. I do have a pension but want to have to mortgage paid off way before then.

I'm looking at the new super isas - although I know there is a £15k limit - as stocks and shares scare me!

somethingcorporate

Investing in the S&S doesn't likely match your risk tolerance.

Do you have a partner? Suggest using the full new ISA allowance will allow you to keep it wrapped up. The returns won't be great but your capital will be safe.

RoxieW

Business partner, no. Life partner, yes - I'm married.

Thank you - is it known when the S Isa's (rates etc) will be announced by the banks?

Archi_Bald

RoxieW wrote: »

Thank you - is it known when the S Isa's (rates etc) will be announced by the banks?

I think you might be confusing the issue by calling ISAs with the new limit "super ISAs". There has been mention of NISA (for new ISA) but that is really a misnomer too because it's still just an ISA, and all existing ISAs will be subject to the same rules as the new ISAs. Best just stick to talking about cash and S&S ISAs.

The only substantial differences to existing ISAs will be

1. from April 6 2014, the ISA allowance will be £11,880, of which max £5,940 can be in a cash ISA
   
2. from July 1 2014, the ISA allowance will be £15,000, and it will be up to you how much you put into S&S or cash
3. from 1 July 2014, S&S ISAs can be transferred to cash ISAs
4. from 1 July 2014, interest on cash held in S&S ISAs will no longer be taxable

All other rules stay the same.

By 1 July, it is possible that the S&S ISA providers might pay a little more interest for cash held in S&S ISAs, but this is unlikely to be any better, or even as much as, cash ISA providers are offering. It is also possible that some of the providers who already offer both, cash ISAs and S&S ISAs, will come up with some sort of a combined ISA. These combined ISAs might get referred to as NISAs, who knows.

It is extremely unlikely that any cash ISA provider will provide any rates higher than the ones available now. Reason being is that it is virtually certain that there will be no rise in the BoE rate before July 1 2014.

The best cash ISA rates are listed here: https://forums.moneysavingexpert.com/discussion/401374