What to do with £15K inheritance for 4 years during University

domthevom

I've recently come into an inheritance of £15,000 but am shortly to start uni. It's a 4 year course and I have easily enough income to support myself through this period and therefore want the money tied up in the most profitable savings/investments available with a lowish risk for up to 5 years. However, I have no idea where to start-I'm assuming I should shove as much as possible into an ISA immediately, but then Mini cash or Maxi with shares?! And what to do with the rest?

Any suggestions would be greatly appreciated.

Broke_Student

You say you have 'easily enough income to support yourself'. Is your income over £5k? In that case do you pay tax on savings interest as a result?

If you are a non-taxpayer and plan to use the money soon after graduation (house deposit etc) then there is no point in going after ISAs for the tax free status as your savings are tax free in the short term anyway. Looking at the top paying instant access savings acount would be a better choice in this situation.

You might have more elaborate plans which justify sticking the money into the ISA. For example you might contemplate being a higher rate (40%) tax payer soon after you graduate and want to build up your ISA to use to offset a mortgage so you maximise the tax free status...

In my opinion, if you don't pay tax and if you can be certain you won't need to spend the money or draw an income from the interest, you should look into a 3 year fixed rate bond so you can 'forget' about the money and get on with being a student with less to think about...

domthevom

Broke_Student wrote: »

You say you have 'easily enough income to support yourself'. Is your income over £5k? In that case do you pay tax on savings interest as a result?

If you are a non-taxpayer and plan to use the money soon after graduation (house deposit etc) then there is no point in going after ISAs for the tax free status as your savings are tax free in the short term anyway. Looking at the top paying instant access savings acount would be a better choice in this situation.

You might have more elaborate plans which justify sticking the money into the ISA. For example you might contemplate being a higher rate (40%) tax payer soon after you graduate and want to build up your ISA to use to offset a mortgage so you maximise the tax free status...

In my opinion, if you don't pay tax and if you can be certain you won't need to spend the money or draw an income from the interest, you should look into a 3 year fixed rate bond so you can 'forget' about the money and get on with being a student with less to think about...

I'll be earning in the region of £4-5,000, plus grants of £4,100 (non-taxable and a student loan of around £5,100. I'm assuming this means I should be able to scrape through without paying tax, so your point on ISAs is valid. I am quite prepared to shift the funds once a year though and as such am wondering if 1, 3 or 5 year bonds would be best, as I can get 6.70% AER at the moment till sept '08.

Broke_Student

Your basic personal allowance (tax free allowance) is £5225. Earn more than that and you have to pay tax any job earnings above the limit and also on ALL savings income.

'Student money' (loans/grants/bursaries) doesn't count as taxable income so you don't need to start paying tax if 'student money' takes you over your personal allowance.
But heres the complication - all interest from savings (whether it be student money or money saved from a job) counts as taxable income. Therefore if you earn £5000 from a job (below tax limit) but you make £900 in savings interest then you go above your allowance and must pay tax on THE WHOLE AMOUNT of savings interest (not just the bit that takes you over the allowance limit)! I think thats how it is anyway...

So I guess technically you will end up having to pay tax on your savings as you will have a high job income and also the income coming as savings interest from £15k+student money+job money before you spend it!

Broke_Student

Actually I think what would happen is that you start paying tax on the savings interest at 20%. At the end of the year you add up earned income + savings interest. The total will tell which tax bracket you are in - 0%,10%,20% or 40%. You then compare this to what tax has been taken and claim back anything that has been overpaid.

It get very confusing when your earnings are near the tax boundaries and it is the actualy interest from savings which takes you over the boundary meaning you are liable to pay tax on that savings interest...

amcluesent

The 3 or 5 year NS&I index-linked bond is zero-risk and the interest is tax free.

Jonbvn

amcluesent wrote: »

The 3 or 5 year NS&I index-linked bond is zero-risk and the interest is tax free.

Sorry to be pedantic but they are called Index Linked Savings Certificates. It is very important that you always get the name of a product exact, since many banks and BS's have very similar named products, with varying T&C's!

isofa

Despite your tax status (assuming non-taxing payer), I think you should make good use of the ISA limits, either basic cash, or on some advice some stocks/shares ISAs. Although you won't get the benefit of the interest tax free perk (as you are already under the tax limit so far), but later on when you graduate, you'll have built up a decent tax free part of savings in an ISA, which will carry on to attract tax free interest. If not after you graduate you'll have lost 3 years of tax free savings, which you can't backdate. Personally, I'd also go for some good fixed rate bonds currently around 6.7% if you shop around, but because the interest rate may well go up again this year, I'd be careful about fixing for a 3-5 year period. Although if you think the rate will go down, then go for a longer term! Keep some cash in a high-interest quick access account too, just in case.
As you are barely a tax payer, and might not be until you graduate, (remember the personal allowance goes up every year), the NS+I tax free index linked savings, won't be as useful percentage wise until you are a tax payer (especially a high rate one), so stick with good gross high interest accounts.

[Deleted User]

How about buying a house? Seriously... buy something cheap in a student area and become a student landlord.. rent out rooms to your mates and live there yourself. Let your mates pay your mortgage for you

isofa

With a 15K deposit or less?! :rolleyes:

domthevom

I'll be studying in London, so while that's a tempting idea I doubt I'd get anything more than a shoebox for less than £150K!!

Anyway, thanks for all your suggestions! Having taken into account the options and your suggestions, I'm probably going to shove £3K into a BMW Mini Cash ISA (6.7% AER) and the rest into their fixed bond (same rate). Rates fixed till Sept '08 so should do ok out of that.