Tax on savings for pensioners?

sneekymum

I think he needs to put £7000 in an income generating ISA and pay no tax at all on the interest received as income or on any capital growth.

Then National Savings Certificates can be bought up to £15,000 per issue per type (there's fixed-interest and index-linked). These are tax free too. But they don't produce income.

He should see an IFA. Especially if you are unsure about money.

ReportInvestor

Tax implications are important, but income needs could be much more important e.g. if your father now has to pay rent.

Paying 20% tax on some income above 9K pa is hardly onerous and shouldn't stop you considering high interest building society accounts or income unit trusts as part of his new investment portfolio.

Don't let worrying about tax stop your father getting the income he needs or would enjoy.

dunstonh

Paying 20% tax on some income above 9K pa is hardly onerous and shouldn't stop you considering high interest building society accounts or income unit trusts as part of his new investment portfolio.

Not sure where this £9000 came to be mentioned. The OP said that there was lot more to invest than £7500. Depending on how much " a lot more" is, then unit trusts and building society accounts and age allowance may come in to play. Without knowing the income currently and the amount being invested, the tax sitution is unclear and therefore investment tax wrapper discussion is pretty pointless. Only warnings of things to be careful about can really be issued. Whether they are appropriate or not, we do not know.

cheerfulcat

Editor wrote:

Just to set the record straight, there is no tax on dividend income from shares to basic rate taxpayers (or 10% or non-taxpayers). HRT pay 25%.

Quite right, Editor, although it's a little more complicated than that as you know; I wanted to show the OP that there were some *no*-tax options :-)

Cheerfulcat

ReportInvestor

dunstonh wrote:

Not sure where this £9000 [before you pay 20% tax] came to be mentioned.

£7,200 personal allowance at 0% tax, £2,020 allowance at 10% tax = £9,220 income allowed before he pays tax on savings at 20%.

So on a £1,000 pm income (£12K pa) he would still only pay around £760 pa tax if the investment income for that came from a taxable building society account.

If he's got a significant amount to invest then of course he should see an IFA who can advise him about protecting income v inflation / falls in interest rates etc. etc. and also see a solicitor re a will and inheritance tax.

I would want to make sure that my dad at age 79 had a comfortable current income and also, if possible, a growing income. I'd use tax free wrappers where these are available and appropriate - some good ideas have already been suggested above.

But I wouldn't make the tax tail wag the investment / financial planning dog.

dunstonh

Ahh, thank you, I now see where the £9000 came from. I was looking at the posts for a specific figure of 9k.

EdInvestor

A word of warning: the minute an IFA walks into the house, 9 times out of 10 he will suggest an insurance bond.He will explain that this investment pays 5% annual tax free income and is thus ideal for someone like your father.

Treat this suggestion with caution

Insurance bonds attract very high commission for the IFA - as much as 7% - and thus high charges are levied.They often have penalties for withdrawing the capital.If returns are below 5%, will your father's income be coming from his capital?

Check all claims about insurance bonds out in detail, comb the fine print.

Ask the IFA to provide other alternatives to maximising income from the capital.Offer to pay a fee so he takes into account methods which don't pay commission.

Oh, and come back here to discuss his suggestions before going ahead

dunstonh

A word of warning: the minute an IFA walks into the house, 9 times out of 10 he will suggest an insurance bond

Wrong. Stats without fact.

He will explain that this investment pays 5% annual tax free income and is thus ideal for someone like your father.

Wrong. You will not see any reference to 5% tax free income. That would be an instant upheld complaint and that sort of wording is a blast from the past. You will often see 5% withdrawal allowance without any immediate tax liability. Anyway, a bond could be suitable for his father if the investment income would take his income over £19,000 in total. A bond does not reduce the age allowance. Trusts may be needed as well and bonds are used in that case.

Insurance bonds attract very high commission for the IFA - as much as 7%

Wrong. It can be higher than 7% and very often it can be lower. That is full initial commission and you can get that sort of amount on ISAs and OEICs as well. Some of the fund supermarkets roll up the trail commission for a few years and pay it upfront in indemnity commission. If the commission is taken on the initial plus trail option, then there is little or no difference between an ISA/OEIC/UT or bond.

Ignoring commission rebates/refunds, so full commission is taken, it is quite easy to get a variety of investment bonds at this time that have a lower reduction in yield over 10 years than an ISA or OEIC. The difference can be more than the tax differences.

I did an NU bond recently that got 105% initial allocation with no initial charge. Invested in the NU property fund. The same fund used in an OEIC would have had an initial charge and similar AMC. There was about £10,000 difference in favour of the bond at the 6% rate. The OEIC was more tax efficient but the charges were higher.