Tax Efficiency on savings?

MX5huggy

kassy64 said:

What do others do?

Don’t have cash savings anywhere near using the £1000  (£2000 for both of us) savings allowance that would be close to £100k not working it’s best. 

You’re wife should be making pension contributions up to her annual salary, (live off the savings). Do you still work? Depending on what your “works pension” is but Otherwise £2880 should go to pension grossed up to £3600. 

Invest anything remaining in an Stocks and Shares ISA, presuming the money is not required for at least 5 and probably 10 plus years. 

kassy64

Tucosalamanca said:

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?

Thanks for the advice Tuco, but surely there will always be that gap between ISA and fixed bond rates etc (will they not both rise etc).
Regarding the pension option, I may look into that but my wife will not be working beyond next August so would it be worth doing for such a short time?

aroominyork

Here's a trick I learned on this forum (from @masonic) earlier this week. Buy a short-dated low yielding gilt, for example Treasury 0.125% 31/01/2024 (TN24). I bought it at £95.87. In the c.17 months until its maturity date I will make an annualised gain of ((100-95.87)/95.87) / 17*12 = 3.04%. The capital gain on gilts is not taxed (ie no CGT). You also receive 1.5 coupons of 0.125% which is taxed, but the coupon is so low it can almost be ignored for tax purposes. The total annuallised gain (assuming 20% tax on the coupon) is 3.04% + (0.125 * 80%) = 3.14%. The price of TN24 has crept above 96p in the last couple of days so the return might now be a little lower but you can easily work it out.

Tucosalamanca

kassy64 said:

Tucosalamanca said:

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?

Thanks for the advice Tuco, but surely there will always be that gap between ISA and fixed bond rates etc (will they not both rise etc).
Regarding the pension option, I may look into that but my wife will not be working beyond next August so would it be worth doing for such a short time?

I think that cash ISA have been neglected (and gradually become uncompetitive) for a long time, particularly since interest rates crashed and the savings allowance was brought in. However, as rates rise, I think they'll become attractive and offer more competitive rates compared to fixed bonds etc as they did in the past.

Regarding pensions. I think a lot depends on your personal circumstance and what your future plans are.
assuming your wife doesn't start drawing from pensions, you could continue to make significant contributions for a while.
At 57, I will be drawing 25% from pension pots and putting straight into partner's pension, effectively gaining a second tax contribution on the funds. 
Having money in ISAs ready to draw down also helps. We can delay taking from pension and deplete other capital first.
Pension funds are also exempt from IHT, which is another thing for us to consider.
We can also happily live at around tax-free levels of income, (we live a modest lifestyle) so this works for us.
That's the plan anyway...

MX5huggy

Pension

If wife put £12k into a SIPP this tax year and next £24k would be turned to £30k then if she has no other income could get the whole lot out in the following 2 years without paying any tax. 

Or you can leave £24k in a savings account where in 2 years time it might be worth £25.5k

InvesterJones

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)

Don't. Instead, work out the way that gives you the best return after tax. If it also happens to include more tax then that indirectly benefits you and many others at the same time.

kassy64

InvesterJones 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)

Don't. Instead, work out the way that gives you the best return after tax. If it also happens to include more tax then that indirectly benefits you and many others at the same time.

Time to get the calculators out I reckon !