Advice, overpayment vs debt repayment vs ISA

beardedmonk

Hi All and thankyou in advance,

Looking for some advice, I am currently paying back a family member £500 a month, on a debt of about £35k. I am not paying any interest on this and won't be for the next year. I wondered if shifting this money (which wouldn't be a problem) from paying this back to either overpay on my mortgage or up my own ISA contributions.

Few details:
I am 34, currently living in the States, my property is in the UK and rented out. I don't pay tax in UK or the states at this time, prior to being in the states I lived in Brasil for 18 months. Obviously this situation is / was advantageous to my finances, I started to overpay on my mortgage at the start of the year. I have had the house since 2003 and due to work, interest rates etc I had to extend the term at one point. So the overpayments were initially to reduce the term back to a reasonable length. I also took the view that whilst i was losing 20% of the rental income directly to the tax man, I would ignore this and bump my overpayment to match the figure without losing the 20%. My current term is 9 years on about £80k.

I don't have a pension, but I am starting one with my company soon, but obviously lose the government top up. I will be paying in about 10% and my employer should be matching that.

I pay £600 a month into a ISA (again since the start of the year), 65-70% in a Vanguard US all-market index and the rest in some higher risk / growth cap, emerging markets etc.

I

So the options are:

1 Carry on paying off £500 a month, until interest is charged (at a low rate but not stupid, probably around 4% in a years time).
2 Move the £500 across and overpay more on my mortgage (I currently get £800 back after management fees / 20% reduction and pay about £1100). This would reduce my term from 9 years to 5 years.
3 Up my ISA contribution to £1100 a month.
4 A mixture of 2 & 3 or 1,2 & 3 etc.

Part of my thinking is my current fixed rate interest rate of 3.64% ends in early 2018. So by overpaying I reduce the effect of increases in interest rates between now and then. Plus reduce my interest payment by four years. Most of my thinking is to set myself up for retirement, or at least on the right course. I recently read a few books, including a couple of Bogle's on investing, so have some basic understanding of saving as soon as possible.

Any advice would be gratefully received!

Archi_Bald

Sorry but if you are not a UK resident, you are not allowed to pay into an ISA. HMRC are likely to pick up on this sometime after they have received the annual reports from the ISA providers next year.

http://www.hmrc.gov.uk/isa/faqs.htm#14

Not sure how you get away with not paying tax anywhere but I reckon they will catch up with you before long.

beardedmonk

Appreciate the advice on the ISA, hadn't even thought about that. On the tax front, I will in due course have to advise the IRS, but there is a good chance I will out of the US before I have been here 183 days, so as far as I understand it I will not have to pay tax.