Moving Away from Savings

GooeyBlob

I wonder if there are many others in a situation similar to mine...?

I am a basic rate PAYE taxpayer and nowhere near the higher rate but manage to save enough every year, mostly through thrift, to put the maximum into a stocks and shares ISA annually. I have also managed to squirrel away a six-figure sum into various conventional savings accounts and building society bonds over the years.

Unfortunately, with the announcement that interest on savings will no longer be deducted at source from next year I realised something would have to be done to keep my tax situation as simple as it has always been. With this in mind I have decided to close a few accounts and move the money elsewhere, which means moving something of the order of £95K before April to get my gross savings income below the £1000 mark.

I can use this year's ISA allowance to move £15240 and have just taken out a TESP - a Tax Exempt Savings Plan - with a friendly society which will account for a trifling £300.

I'm not keen on premium bonds as the rate of return is worse than that for savings, although they are tax-free and if push comes to shove they might be a last resort, particularly if I wanted access to the money quickly.

I'm now looking into the possibility of investing in VCTs - Venture Capital Trusts - over the medium to long term as I have a fairly adventurous attitude to risk.

I can't be the only one looking to do this as, let's face it, savings don't perform at all well! What other investment options are others currently considering which are tax-free or where the tax is deducted at source?

colsten

GooeyBlob wrote: »

Unfortunately, with the announcement that interest on savings will no longer be deducted at source from next year I realised something would have to be done to keep my tax situation as simple as it has always been.

The new tax deduction rules, if they indeed get implemented, should work in your favour, as you no longer will have to pay tax on £1,000 of interest each year.

Diverting your money into rather questionable savings instruments just because they advertise tax exemption seems a rather rash and unresearched move.

In your situation, investing into VCTs to save paying tax is like jumping off Beachy Head without a parachute, and without having investigated less treacherous routes to the beach. When, in fact, you might already be on the beach!

Investing in VCTs isn't necessarily bad, but on the risk scale, it is a million light years from having a few hundred thousand in savings accounts.

Why would you jump from safe savings to unknown investments just because you have been told you will have to pay less tax on your savings interest?

Not sticking with savings exclusively might, of course, make sense. But there are an awful lot of less risk investments than VCTs.

jimjames

I know it's only £300 but why would you bother putting anything in a friendly society plan just because it's tax free.

This really seems to be a case of tax driving decisions irrationally.

It's better to pay tax and get a higher return than pay no tax and get less.

mvarrier

Gooey, I don't really understand the problem. Are you going to all this effort just to avoid doing a tax return?
If you PAYE you should be able to simply sort out how much you owe HMRC once a year with a telephone conversation

Purplesky_2

You haven't mentioned pensions at all? Wouldn't that get rid of a chunk of change, particularly if you use previous years allowances?

enthusiasticsaver

Pension? I would agree with others that investing in a fairly risky venture or small amounts in friendly societies just to avoid doing a simple tax return online seems a bit daft to me. I would just use your isa allowance for stocks and shares isas and invest more in your pension if you really want to get your investment income down. Failing that spend it!! Have you managed to save that much through never spending anything? Do you own a house or a car or any other assets? Not relevant to your question I know but I am just interested as to how you manage to save £15k plus per year on an income of presumably less than £40k. Or maybe you don't have kids? That would work