Where to put proceeds from downsizing?

MrsFingersCrossed

Thanks everyone - I'm looking into your suggestions. Lots to think about, and we can't do anything until house sale completes. But it appears I can put a bit in my pension even though I'm not working at the moment, and it will still be topped up by the government so I will put the max in that (won't be much as a non-earner but still worth doing). And the 123 account, the max and pay bills from it to get the cashback.


Then we'll look into the Personal Assets Trust investment (thanks, Kidmugsy) as it would be good if it could grow a bit. Will look into Rugger investments - Hargreaves Landsdown keep sending me emails so I will get in touch with them. And I read that Paragon Bank have a good rate where some of it could sit safely earning 2.5%.
I'm also thinking of putting a bit in peer to peer lending (Ratesetter).


My H is still working so maybe we could put some of it in his pension. But then surely he'd have to pay tax on it when he draws it down (after the 25%, I mean). That seems a bit daft when, if it's in a building society for example, he wouldn't have to pay tax on it at all.
My H is a practical man who has even less of an idea about money matters than me, so I do value your input. I read the financial threads and while some of it is over my head I find myself gathering information as I go and have moved on from thinking we'd put it all in premium bonds, so maybe we are learning.:)

kangoora

MrsFingersCrossed wrote: »

My H is still working so maybe we could put some of it in his pension. But then surely he'd have to pay tax on it when he draws it down (after the 25%, I mean). That seems a bit daft when, if it's in a building society for example, he wouldn't have to pay tax on it at all.
My H is a practical man who has even less of an idea about money matters than me, so I do value your input. I read the financial threads and while some of it is over my head I find myself gathering information as I go and have moved on from thinking we'd put it all in premium bonds, so maybe we are learning.:)

Not necessarily. Provided he has no other income he can draw down (currently) £10,600 a year, the current personal tax-free allowance, without paying a penny in tax even after taking out the 25% tax free amount. He could, for example, draw down the equivalent of his pension due at 65 every year without paying tax.

Obviously, if he has other income such as pensions then this reduces the £10.6K allowance on a pound for pound basis.

Plus, if he still has 'earnings' at present, for every £80 for a BRT they put into a pension, HMRC grosses up to £100 (easy 20% uplift)

You still pay tax on building society interest, when the ruies change you'll each be entitled to earn £1k/year in interest without paying tax.

xylophone

Will look into Rugger investments

Keeping an eye on the ball?:)

Have each of you obtained a new state pension statement to help with planning?

https://www.gov.uk/state-pension-statement

MrsFingersCrossed

'Keeping an eye on the ball?:)'- er, sort of, Xylophone, but not quite it seems! That should be Ruffer, I think.


We got recent pension forecasts and my H's starting amount is approx £141.0 pw and mine is approx £129.00 per week. I only have 32 years so need another 3 to get the max I can get - I might manage that either by part time job or tiny self-employed income which means I could pay the small NI stamp - have to look into that.) Small contracted out deduction for me, bit larger deduction for H, but he's been paying NI since he was 15 so has more than enough years.
My small private pension has about £16,000 in it and I'm still paying in a tiny sum to keep it 'live'. H's 'private 'pot' has about £75,000 in it (separate to the company pension of £10,000 pa due at 65 which we're not touching despite letters trying to tempt us - it has widows pension and annual rises built in).


Kangoora - very good idea for H to maybe up his pension contributions to the max which he's still working (as soon as we have the money from house to supplement reduced monthly income) so that he gets the 20% added to the pot. Once he gives up work he could draw down the £10,6000 pa paying no tax but what about the rest to make up to annual income needed (ie 24,000 approx, so 14,400 of it would be taxed?) It's a dilemma because in one way if it's in the pension pot it is growing well (and has been bumped up by 20%), and as long as we leave it there it will probably continue to grow, but he'd only not pay much tax in the next four years before his other pension kicks in at 65, then even more would be taxed once he's 66 and gets state pension. He plans to give up work in around 9 months, once he's 61.


Thanks everyone for your input. Really appreciate it.:)

kangoora

You each have a personal allowance. if you arrange your pension investments you could each draw down £10.6k without paying tax for a number of years until you get SP at least.

If you are both drawing from pensions then you can take £14,133 each for each year tax-free until you start to get his pension at 65 when he will be automatically close to the tax-free limit with his work pension. Ideally, your tiny pension pot needs to be bumped up so you can continue to draw down up to your personal allowance each year. I'd suggest maxing out your pension contribution also so that effectively:

Him aged 60-65 - draw down £14,333 tax free (for this he doesn't take a lump sum, just has 25% tax free each year)
You (for the same years) - draw-down 10k/year (assumes you manage to stuff your pension with more cash, work longer? or use previous years allowances?)
Him aged 65+ - Work pension
You (for same years) - keep drawing 10k

At SP age a large proportion of each of your tax-free allowance will be gone from the SP, just then need to work out what is best and try to get as much as possible into ISA's along the way there.

On the plus side, with a £10k DB pension and 2 x SP of around £15k you'll be over the £24k you need a year without drawing down your savings much so what is left at this point can be used for whatever you need.

Using some VERY rough figures, your are starting out with around £190k (£100k downsize cash left and 2 x pots of £90k).

Him 61-65 - draw down £14k x 4 years = £56k drawn
You (same period) £10k x 4 years = £40k drawn
Him 65 - £4k +£10k pension = £4k drawn
Him 66 = £10k pension + £7k SP = £17k (no drawdown)
You (from him being 65/66) = draw down £7k until your SP = £21k (3 years) drawn

Very roughly you will draw out about £120k of your £190k, add in a bit of investment income at say an average of £5k/year for 7 years = £35k

Very, very roughly - you could have a pot of around £100k left when all SPs kick in. How much of that will be left will depend on how good you are at sticking to your £24k annual budget

MrsFingersCrossed

Gosh Kangoora. You've done a lot of thinking here for us. Thank you. Brilliant idea which mainly seems to hinge on me getting more money into my pension. As a non earner I can only put in approx. £2800 a year I think but I'll look into using left over allowance from when I worked - didn't know I could do that. (I only gave up work a month ago.) That annual income of £24,000 I think we need is after tax, ie I reckon we can get by on £2,000 per month, so really need more than that before tax. But in theory it seems doable, what you have kindly outlined. And we might both still earn a bit - H hopes to do a bit of gardening and odd-jobbing which should bring in something. Awful lot to think about. But no mortgage and downsized house (semi) should be cheaper to run, and I'll have time to shop sensibly for food and shop around for utility deals etc, all the things that could make a difference which got overlooked while so busy working.

atush

yes you can pay in 3 years past, but not entirely sure you still can if you have stopped that work. Do check.

However, yes you can pay SE nics if you are earning a small amount SE. And should those earnings be more than 3600 per year, you oucld pay the lot into a pension, as your limit is 2880/3600 if not working or your entire income if under 40K.

kidmugsy

MrsFingersCrossed wrote: »

Brilliant idea which mainly seems to hinge on me getting more money into my pension. As a non earner I can only put in approx. £2800 a year I think but I'll look into using left over allowance from when I worked - didn't know I could do that. (I only gave up work a month ago.)

Too late. In this tax year you can contribute only the higher of (i) £3600 gross (=£2880 net), or (ii) your earnings.

So if you've stopped work that implies that (i) is your limit unless you got a jolly nice salary payment after April 5th. Or some severance pay, perhaps.

MrsFingersCrossed

No more money coming to me from employer I'm afraid, but I will put in what I can as a non earner. Definitely worth doing that.

atush

Which means you need to put more into S&S isas so you can draw that income tax free. In the years between now and then, you can reinvest the income within the isa as you dont need it.