Best way to use Lump Sum Redundancy

ecnirp98

Hi


I am going to receive a redundancy payment of around £45,000 in around 3 months (just started notice), so I am wondering what the best options are to save/invest this money.


I have a good amount of savings and own my home outright with very few debts (on interest free credit cards with long terms on interest free promotions), so I do not need access to this money in the short term.


One of the options I am looking into is paying the £15,000 above the £30,000 tax free redundancy allowance into my pension (I am a 40% tax payer). SIPP's also look interesting.


I have a Coventry ISA paying 2.4% over 5 years (1 year in so far and now closed against deposits), I was considering a Stocks & Share ISA as the savings ISA returns are quite poor returns, I do not want to take too much of a risk with the money.


A few people have also mentioned using the Santander 123 account for the improved interest rate, I have a Halifax Ultimate Reward account, as I use the included phone/travel/breakdown insurance for £10 a month, so would opening a new Santander account affect my credit rating as a second current account?


Thanks for any advice.

Linton

Paying the £15K into a pension is very worthwhile particularly if you are a higher rate taxpayer but wont be one after retirement.. The 3 months notice will take you into next tax year so how long will it take you to get a new job? Will you be a higher rate tax payer in 2016/2017?

If you have enough emergency cash available for perhaps in your case 12 months living expenses (6 months to cover the time til you get a new job and 6 months for the next redundancy(!)), an S&S ISA or SIPP could be sensible.

ecnirp98

Thanks for the reply.

I have an offer of a new job, so will be paying 40% higher rate tax in 2016/2017 if I accept it.


I have around 1 years emergency living expenses, I released this from the company share save scheme so I could use the £11,000 capital gains allowance this year, sold some of the shares at 3.5 times the option price, so did well, (considering putting this £20,000 into a Santander 123) and my wife works, which covers all bills.


I am 46, so a few years from retirement when I will not be paying higher rate tax unless something spectacular happens like winning the lottery !!! and no doubt will be made redundant again as I work in IT (this is the second time) !!!

kidmugsy

I'd think you want to be a keen student of the Budget statement on March 16th; if little changes, then a pension contribution in 16/17 might fit the bill. Meantime, borrow enough from your emergency funds now, before March 16th, to let you wipe out your 15/16 higher rate tax liability. Look on that as insurance against bad news for HRT payers in the Budget. Pay back your emergency funds from your £30k tax-free redundancy money.

ecnirp98

Do you mean like to pay an AVC to my pension now in 2015 Tax year?:


Meantime, borrow enough from your emergency funds now, before March 16th, to let you wipe out your 15/16 higher rate tax liability.

kidmugsy

ecnirp98 wrote: »

Do you mean like to pay an AVC to my pension now in 2015 Tax year?:


Meantime, borrow enough from your emergency funds now, before March 16th, to let you wipe out your 15/16 higher rate tax liability.

Yes, that would do. Or, to act before the Budget, open a SIPP or Personal Pension.

ecnirp98

It looks like the budget is not going to change the pension tax now according to the news, so I will pay the extra £15,000 over the £30,000 redundancy Tax Free limit into my pension in June.


Can you have multiple current accounts? as I am thinking of opening a Santander 123 account to pay in the redundancy money while I decide what to do with the money to earn the best interest with easy access, I have a Halifax Ultimate reward account I want to keep for the insurance benefits, I need to make 2 Direct debits per month and pay in £850 for that.

YorkshireBoy

ecnirp98 wrote: »

Can you have multiple current accounts?

Yes. I have around 24 at the moment. You may not want/need so many!

as I am thinking of opening a Santander 123 account to pay in the redundancy money while I decide what to do with the money to earn the best interest with easy access

Since there are two of you, it's possible (by opening a few current accounts) to do much better than the Santander return after the £60 annual fees. For example, you could get 4.5% AER on just under £30K (£7.5K of it for the first year only). Yes, there's a little work to do, but once set up it almost runs itself.

I have a Halifax Ultimate reward account I want to keep for the insurance benefits, I need to make 2 Direct debits per month and pay in £850 for that.

It's £750 a month.

But whilst we're on that subject, you said earlier you pay £10 a month. You don't. You pay £15 a month and they give you a £5 Reward. So the 'net' cost is £10. If you downgrade to a Reward account you'll still get the £5. Look at Nationwide FlexPlus...very similar benefits to the Ultimate Reward account, but for only £10 a month. Plus you get 3% AER on up to £2,500 of credit balance. So the £5 from Halifax and the £5 or so interest gets you the insurance benefits for nowt (using your earlier logic).

atush

15K into pension, 15K into S&S isa, and 1%K into savings (can be pensioned or S&S isa'd in next tax year if you like?).

ecnirp98

atush wrote: »

15K into pension, 15K into S&S isa, and 1%K into savings (can be pensioned or S&S isa'd in next tax year if you like?).

Yeah, I'm thinking of something like that, any recommendations for S&S ISA's?

ecnirp98

YorkshireBoy wrote: »

Yes. I have around 24 at the moment. You may not want/need so many!Since there are two of you, it's possible (by opening a few current accounts) to do much better than the Santander return after the £60 annual fees. For example, you could get 4.5% AER on just under £30K (£7.5K of it for the first year only). Yes, there's a little work to do, but once set up it almost runs itself.It's £750 a month.

Yeah, 24 accounts sounds allot !!!! doesn't that affect credit rating etc? I presumed current accounts are pretty much where you have your salary paid into/make DD payments etc.

I have been looking at:

http://www.bankaccountsavings.co.uk/


which gives some good ideas on how to maximise accounts, I do not mind moving money around accounts monthly, I have 2 Halifax Reward savings accounts (single & Joint) and I transfer into them monthly from my ultimate account on SO to get the £5 cashback, so that £10 pays for the Ultimate benefits after the £5 cashback you rightly point out, I said £850 earlier as that is what I send between the accounts to cover the minimum £750 monthly deposit.