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ISA Dilemma - advice sought
Comments
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David_Drummond wrote: »My position is this - I am a old aged pensioner and my income is about 11k per annum. I already have £20k stashed in a 123 account. This ISA maturing has caused me to consider options to maximise the interest on that separate sum. I will look into NS&I and see if I can switch over. I also need to look into a S&Shares ISA. Thanks for all your advice.
How close to £11k p.a.? The Personal Allowance against income tax is now £11,850 for 18/19. Suppose your current income is £11,010. (We can ignore your bank interest in this because it comes tax-free anyway.) Then you can make an extra £840 income without paying tax on it. So why not contribute to a SIPP (self-invested personal pension): you can pay in £2880 in this tax year (unless you are already 75). The taxpayer gives the provider a tax rebate of £720 (even though you are not a taxpayer!). Now, once you've waited for the tax rebate to arrive (a couple of months) you take out £900, your tax-free lump sum. You also drawdown £840 of taxable income on which you will owe no tax because of your personal allowance. In fact the provider is obliged to hold back tax on it because you'll be on an emergency tax code, but you phone up HMRC (preferably at 08:00 on a Saturday morning) and ask them to send you a tax rebate. Or somebody might come along and suggest a neater way. Maybe draw the £840 in equal monthly payments of rather more than £70 (because the remainder of the tax year is less than 12 months long.)
That leaves a balance of £1,860 in the SIPP. You might like to leave that for drawing down from in tax year 19/20 or you might like to drawdown a bit more and just accept paying 20% income tax on it. In 19/20 you might also consider contributing another £2,880 both for the fun of getting another £720 tax rebate and also because you'd like a bit more cash in the SIPP for drawing down after you turn 75.
For our small SIPPs we use Hargreaves Lansdown whose service is excellent and whose charges for small SIPPs are OK. To avoid their charge for closing the SIPP early be sure to leave money behind in the SIPP until after the first anniversary of opening it. If your money is going to sit in the SIPP for only a few years there's no point in taking the risk of investing it: just leave it as cash. In that case HL's charges are laughably low.
http://www.hl.co.uk/pensions/drawdown/charges-and-interest-rates#retirement-charges
Observe: your £2,880 makes a profit of £720 (the tax rebate). That's a 25% return, earned over the course of a couple of months. No savings account or ISA can compete with that.Free the dunston one next time too.0 -
David_Drummond wrote: »The Coventry has offered me another Fixed Rate at 1.75% AER fixed until Nov 2021 which seems pretty good compared to others. BUT I am wondering whether to stay with Coventry or jump ship and transfer - but if so, where to?
With P2P you don't see regular ups and downs but instead occasional defaults. At Ablrate the loans are normally secured on property but sometimes machinery. In the most recent of the two default cases it appears that there will be full recovery after about a month. The earlier one is still working through the legal process.
No ISA but P2P firm Unbolted delivers about 7% on pawned items and has a minimal attention needed autoinvest feature. In case of default the items are sold and additional protection pays any shortfall in most loans. You can expect a smattering of defaults but no capital losses if you stick to those types.0 -
In fact the provider is obliged to hold back tax on it because you'll be on an emergency tax code, but you phone up HMRC (preferably at 08:00 on a Saturday morning) and ask them to send you a tax rebate. Or somebody might come along and suggest a neater way. Maybe draw the £840 in equal monthly payments of rather more than £70 (because the remainder of the tax year is less than 12 months long.)
There is no need to look for a neater way. Assuming the pension company operates a monthly pay system not weekly then the emergency tax code will only result in tax being deducted if the taxable pension withdrawal is more than £989.0 -
David_Drummond wrote: »My position is this - I am a old aged pensioner and my income is about 11k per annum. I already have £20k stashed in a 123 account. This ISA maturing has caused me to consider options to maximise the interest on that separate sum. I will look into NS&I and see if I can switch over. I also need to look into a S&Shares ISA. Thanks for all your advice.
You might find the 'Banking & Saving' tab at the top of this page (just under the MSE heading) useful - contains plenty of helpful information + up to date 'best buys'.0 -
Fascinating! Thank you!How close to £11k p.a.? The Personal Allowance against income tax is now £11,850 for 18/19. Suppose your current income is £11,010. (We can ignore your bank interest in this because it comes tax-free anyway.) Then you can make an extra £840 income without paying tax on it. So why not contribute to a SIPP (self-invested personal pension): you can pay in £2880 in this tax year (unless you are already 75). The taxpayer gives the provider a tax rebate of £720 (even though you are not a taxpayer!). Now, once you've waited for the tax rebate to arrive (a couple of months) you take out £900, your tax-free lump sum. You also drawdown £840 of taxable income on which you will owe no tax because of your personal allowance. In fact the provider is obliged to hold back tax on it because you'll be on an emergency tax code, but you phone up HMRC (preferably at 08:00 on a Saturday morning) and ask them to send you a tax rebate. Or somebody might come along and suggest a neater way. Maybe draw the £840 in equal monthly payments of rather more than £70 (because the remainder of the tax year is less than 12 months long.)
That leaves a balance of £1,860 in the SIPP. You might like to leave that for drawing down from in tax year 19/20 or you might like to drawdown a bit more and just accept paying 20% income tax on it. In 19/20 you might also consider contributing another £2,880 both for the fun of getting another £720 tax rebate and also because you'd like a bit more cash in the SIPP for drawing down after you turn 75.
For our small SIPPs we use Hargreaves Lansdown whose service is excellent and whose charges for small SIPPs are OK. To avoid their charge for closing the SIPP early be sure to leave money behind in the SIPP until after the first anniversary of opening it. If your money is going to sit in the SIPP for only a few years there's no point in taking the risk of investing it: just leave it as cash. In that case HL's charges are laughably low.
http://www.hl.co.uk/pensions/drawdown/charges-and-interest-rates#retirement-charges
Observe: your £2,880 makes a profit of £720 (the tax rebate). That's a 25% return, earned over the course of a couple of months. No savings account or ISA can compete with that.0 -
Dear friends...I thought you all ight like to know what I finally did with this - as I thik it was a very good solution.
While considering the various options, I remembered that last year I opened a Casg ISA Fixed Rate Bond with Yorkshire Bank with a rate of 2.00%. At the time, I only had £10k to invest. So I have now transferred £10k of my maturing Coventry ISA funds across to it, therey topping it up to £20k and left the remaining 7k in the Coventry in its new ISA at 1.75%. I shall top that up to £10k shortly. I think this may be the most effective deployment of funds without opening new accounts. What do you all think?0 -
I'm impressed to learn that Yorks bank let you add to a Fixed Rate ISA.Free the dunston one next time too.0
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So was I!! But I asked first and they said yes! Worth knowing I think......0
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David_Drummond wrote: »My position is this - I am a old aged pensioner and my income is about 11k per annum. I already have £20k stashed in a 123 account. This ISA maturing has caused me to consider options to maximise the interest on that separate sum. I will look into NS&I and see if I can switch over. I also need to look into a S&Shares ISA. Thanks for all your advice.
A while ago 15 years maybe I told my fellow work colleauges I'd saved myself £20 tax on the £90 interest my cash ISA earned. They thought this was a waste of time and effort. Well now some 15+ years later who's laughing - each year I save myself thousands of pounds in tax and it feels good. If the market crashes, so be it, you only make loss when you sell, and as I'm not selling it's of little consequence.
Also divis are paid in pence per share - if the share price falls the divi paid out remains the same but obviously the yield (percentage return) increases. good luck0
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