Tax Efficiency on savings?

kassy64

Hi,
I have a pot of money that I wish to put into savings.
My work pension puts me over the tax-free allowance (£12,570 plus £5,000 starting rate) so I will only get the 'personal savings allowance' of £1,000.
So effectively, if I earn interest of say £5k in any tax year I will pay tax at 20% on £4k of it, which is £800 tax 😢.
ISA's pay poor rates so, am I better off putting the money into the highest rate fixed bond I can find and pay the tax, rather than an put the max into my ISA and receive a worse rate. I'm happy to have no access for 1 year.
Can anyone give me any ideas how I can reduce my tax bill on my savings?
Thanks
ps. my wife is still working full time so earns over the tax threshold also, but if she opened an account in her own name I presume that would give us another £1,000 interest that could be tax free, is that correct?

xylophone

https://moneyfacts.co.uk/isa/1-year-fixed-rate-isas/

https://moneyfacts.co.uk/savings-accounts/up-to-1-year-fixed-rate-bonds/

presume that would give us another £1,000 interest that could be tax free, is that correct?

 I know what you mean but to be pedantic, Personal Savings Allowance operates on an individual basis.

https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/savings-and-tax

kassy64

xylophone said:

https://moneyfacts.co.uk/isa/1-year-fixed-rate-isas/

https://moneyfacts.co.uk/savings-accounts/up-to-1-year-fixed-rate-bonds/

presume that would give us another £1,000 interest that could be tax free, is that correct?

 I know what you mean but to be pedantic, Personal Savings Allowance operates on an individual basis.

https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/savings-and-tax

Can you clarify what you mean please? The funds are currently in a joint current account so although the funds are from my pension lump sum we jointly own anything in that account do we not? Are you suggesting we would be doing wrong if I/she took say £50k out and opened up a fixed bond in her own name to gain the £1,000 tax on interest amount.

Dazed_and_C0nfused

And to be even more pedantic it's not "tax free", it's taxed at 0%.

Which makes no difference to most people but is does to some as I is still part of your taxable income and adjusted net income.

kassy64

Ok enough of the 'pedantics'   I would like to hear any non-pedantic ideas how to pay the least amount of tax (legally)

Dazed_and_C0nfused

kassy64 said:

Ok enough of the 'pedantics'   I would like to hear any non-pedantic ideas how to pay the least amount of tax (legally)

That's easy, just move all your non ISA savings into ISA's or Premium Bonds.

But sometimes it's better, from a financial perspective, to pay tax on the interest.

kassy64

Dazed_and_C0nfused said:

kassy64 said:

Ok enough of the 'pedantics'   I would like to hear any non-pedantic ideas how to pay the least amount of tax (legally)

That's easy, just move all your non ISA savings into ISA's or Premium Bonds.

But sometimes it's better, from a financial perspective, to pay tax on the interest.

Ok we are back to pedantic, you know i mean how to make my savings give the greatest return in £'s !!!
But surely, I would be better off overall to get a higher % rate and pay the tax than take the poor ISA rates, especially if as above we (my wife and I) can maximise the amount we can pay zero tax on.
What do others do?

soulsaver

It depends on you meaning of 'savings' but pension contribution for you or the wife?
And Stocks & Shares ISA?

MX5huggy

Yes your wife can have her own savings that you have given her to use her savings allowance. 

To work out if it’s better to ISA or take the non ISA rate that you will pay tax on take the rate of the non ISA account and multiply by 0.8 if the ISA rate is better then use the ISA. Eg if you can get a 1 year non ISA fix at 3.35% then (3.35 x 0.8 = 2.68) the ISA would have to pay 2.68% or more to be better than paying the tax on the 3.35%. 

Tucosalamanca

I would say ISA as it's looking likely that rates will increase further, building a tax-exempt pot could be a prudent move.
Alternatively, since your wife is still working, could you not make additional pension contributions for her and gain tax relief that way? Granted it creates a potential liability down the road but might work in your situation? Perhaps speak to an IFA / accountant?

kassy64

MX5huggy said:

Yes your wife can have her own savings that you have given her to use her savings allowance. 

To work out if it’s better to ISA or take the non ISA rate that you will pay tax on take the rate of the non ISA account and multiply by 0.8 if the ISA rate is better then use the ISA. Eg if you can get a 1 year non ISA fix at 3.35% then (3.35 x 0.8 = 2.68) the ISA would have to pay 2.68% or more to be better than paying the tax on the 3.35%. 

Brilliant advice, thanks MX5huggy, that's good to know. Based on that info an ISA is unlikely to be the viable option (in my circumstances anyway)