Deferred Interest

saintalan

I have a one time issue coming in 2015/16 where I will have a large capital gain to pay CGT on.

Currently without my Investment Income I would have about £20k available at 18% with the rest at 28%.

As the gain should be availble in April/May it means I would also have to pay Higher Rate Income Tax on the investment of the gain as well.

Currently, I have savings spread between ISAs, several savings a/cs (3 X Santander etc) but am thinking as this is a one off year I should look at investing where the interest could be paid in 2016/17 or later.

I am retired and I could max out my wifes allowance and buy Premium Bonds etc. Not sure I want more shares than currently have.

Any advice would be appreciated on options of investing conservatively with income not paid until 2017/17 or income accumulated.

Many Thanks

Alan

kidmugsy

There used to be accounts in the Channel Islands that would accumulate interest and pay it out when you closed them. I've no idea whether they still exist.

bowlhead99

There are plenty of investment funds that focus on things generating growth rather than dividends/interest. Of course, they come with risk so not really suitable for a 1 year deferral if you really do already have enough share stuff.

You should definitely shift assets to your wife where possible and catch the basic rate band rather than your own higher rate one. But if you are already using 3x Santander 123 you can hardly put them all in her name.

Premium bonds are tax free but obviously the actual expected return is lower than your Santander (and Tesco and BOS and TSB and Nationwide and Lloyds etc) after high rate tax would be so it doesn't really make sense to shift heavily away from using those sort of accounts as the first port of call before looking at anything paying under 1.5% like premium bonds.

You will likely find some 'regular saver' accounts that only pay interest on termination after you've been saving a year - that would defer a bit. But be careful because some accounts that generally only pay once a year might do it on a fixed date like 31 Dec rather than the anniversary of account opening and so you still get a payment during the same tax year.

Generally there are a whole bunch of fixed term deposits that will give you the money back with interest in 1 or more years, but the problem is that the interest rates (if you don't go for a very long term) are low compared to the current accounts you are using where your interest would be maximised. The bottom line is there is not a lot of point in accepting a 1.5% return to defer your income for a year and pay 20% tax when you could instead get a 2% return and pay 40% tax.

If you already have the £100k+ of cash that it takes to max out all the top (3%+) current accounts and regular savers for you + wife + joint, then the mainstream solutions for new money after that are generally going to yield lower results. Premium bonds are an option if you must preserve capital, and if you are willing to risk the capital there are investment options with much higher long term returns.

If you were using share-based investments, the high rate taxpayer only pays 25% tax on divs and a basic rate taxpayer pays 0%. So they are tax efficient as well as likely to outpace cash if you can do without them for 10-15 years. If you don't have a fixed goal for your £100k+ of savings then perhaps you could be tempted to revisit the 'don't want more shares than you currently have'.

There are perhaps some more convoluted solutions if you went to an IFA, but if all you are worried about is paying a one-off extra 20% tax on a couple of percent of interest (rather than a plan for multi-year returns over the rest of your life), that 'saving' is less than half a percent and you will not get sound advice for that sort of money.