Inheritance what to do with the money

batchy2005

Hi All

I am about to inheret around 60k from a property sale in Spain and was wondering what's best to do with the money. I am looking to potentially use it as a deposit on a house in around 2 years time.
I earn with overtime over 50k so in the high tax bracket. I don't have any higher interest debt.

I was thinking of putting 20k in a ISA to save tax and the rest in a 1 year bond savings?. I don't qualify for a lifetime isa 

I have money box stocks shares isa but don't know too much about it 

Any advice I would appreciate 
Thankyou

Keep_pedalling

Stay away from S&Ss if you need the cash within 2 years. 

EthicsGradient

As a higher rate payer, you get up to £500 interest without tax, in a tax year. With 1 year rates already around 4.5%, that £60k would give you £2700/year. So at least 1 ISA seems a good idea (as Keep_pedalling says, 2 years is too short-term for shares). Are you married? if so, you can both use a cash ISA, if you haven't already this year (if you have money box stocks shares isa, but don't know too much about it, does that mean you haven't contributed to it this tax year? £20k is the limit for the total of cash and S&S ISAs combined).

If you're single, 1 ISA on its own would still leave you paying tax on some interest; it might be worth opening one now, putting another 20k in an instant access account, and then, when the new tax year starts, using that to fund a 2nd cash ISA.  The rest could go in a 1 year bond. Consider whether earning monthly or annual interest would split your instant/1 year interest best between this tax year's £500 no-tax zone, and the next (do you have any savings account already that uses some of it?)

batchy2005

EthicsGradient said:

As a higher rate payer, you get up to £500 interest without tax, in a tax year. With 1 year rates already around 4.5%, that £60k would give you £2700/year. So at least 1 ISA seems a good idea (as Keep_pedalling says, 2 years is too short-term for shares). Are you married? if so, you can both use a cash ISA, if you haven't already this year (if you have money box stocks shares isa, but don't know too much about it, does that mean you haven't contributed to it this tax year? £20k is the limit for the total of cash and S&S ISAs combined).

If you're single, 1 ISA on its own would still leave you paying tax on some interest; it might be worth opening one now, putting another 20k in an instant access account, and then, when the new tax year starts, using that to fund a 2nd cash ISA.  The rest could go in a 1 year bond. Consider whether earning monthly or annual interest would split your instant/1 year interest best between this tax year's £500 no-tax zone, and the next (do you have any savings account already that uses some of it?)

Thankyou. To clarify I don't have any savings so haven't used any ISA allowance and I'm not married.

Would make sense what you're saying just trying to earn as much as I can towards a house. That said buying a house at the moment also looks like a nightmare with mortgage rates so that two years may end up at 5 it's all very variable isn't it.

So I could put 20k in an ISA and leave it for 1year. 20k in a fixed bond for 1 year and 20k in an instant saver and use the instant saver money next year for another isa is that right?. Can you hold multiple isas ? I presume you only have 20k tax free every year regardless on how many isa,s you have ?
Thanks again

EthicsGradient

Yes, that's right - you can contribute up to 20k to ISAs each tax year, but at the start of each new tax year, you can contribute another 20k, and that can be to a new ISA, while you continue to hold the earlier one (and you are allowed to transfer existing ISAs to a different manager, if you want). Or you can contribute it to your existing one.

As an example of what you might do (I Am Not An Adviser, of course):

20k into Santander easy access eSaver 2.75% with monthly interest pays you £45.33/month - 5 months in the current tax year, then 1 month in the next one, when you close it and put that in a new cash ISA
20k into Kent Reliance BS 1 year bond 4.45% with monthly interest pays you £72.67/month - 5 months in current year, and 7 in next. 
20k into a cash ISA now.

This tax year: 5*45.33+5*72.67 = £590 - uses all your 0% tax amount, but not much more
Next tax year: 1*45.33+7*72.67 = £554.02 - again, uses all the 0% amount, but not much more. Around this time in 2023, the 20k in the 1 year bond matures; you could then put that in an instant access account which only pays interest annually - which would be in the 24/25 tax year, when you should have another £500 without paying tax on it (assuming the rules stay the same ...).

Morecambe_Jack

I'm in a similar position and another option to avoid tax on interest is to look at premium bonds. Obviously it is a lottery - you might do well, you might not. 

Robin9

@batchy2005  A couple of years ago you were carrying quite a bit of debt.  Have you been able to clear this ?

batchy2005

EthicsGradient said:

Yes, that's right - you can contribute up to 20k to ISAs each tax year, but at the start of each new tax year, you can contribute another 20k, and that can be to a new ISA, while you continue to hold the earlier one (and you are allowed to transfer existing ISAs to a different manager, if you want). Or you can contribute it to your existing one.

As an example of what you might do (I Am Not An Adviser, of course):

20k into Santander easy access eSaver 2.75% with monthly interest pays you £45.33/month - 5 months in the current tax year, then 1 month in the next one, when you close it and put that in a new cash ISA
20k into Kent Reliance BS 1 year bond 4.45% with monthly interest pays you £72.67/month - 5 months in current year, and 7 in next. 
20k into a cash ISA now.

This tax year: 5*45.33+5*72.67 = £590 - uses all your 0% tax amount, but not much more
Next tax year: 1*45.33+7*72.67 = £554.02 - again, uses all the 0% amount, but not much more. Around this time in 2023, the 20k in the 1 year bond matures; you could then put that in an instant access account which only pays interest annually - which would be in the 24/25 tax year, when you should have another £500 without paying tax on it (assuming the rules stay the same ...).

Great thanks so much. If I don't have a cash isa now I presume to open one I don't want a fixed one as will need to open another is that correct?
Thanks

EthicsGradient

batchy2005 said:

EthicsGradient said:

Yes, that's right - you can contribute up to 20k to ISAs each tax year, but at the start of each new tax year, you can contribute another 20k, and that can be to a new ISA, while you continue to hold the earlier one (and you are allowed to transfer existing ISAs to a different manager, if you want). Or you can contribute it to your existing one.

As an example of what you might do (I Am Not An Adviser, of course):

20k into Santander easy access eSaver 2.75% with monthly interest pays you £45.33/month - 5 months in the current tax year, then 1 month in the next one, when you close it and put that in a new cash ISA
20k into Kent Reliance BS 1 year bond 4.45% with monthly interest pays you £72.67/month - 5 months in current year, and 7 in next. 
20k into a cash ISA now.

This tax year: 5*45.33+5*72.67 = £590 - uses all your 0% tax amount, but not much more
Next tax year: 1*45.33+7*72.67 = £554.02 - again, uses all the 0% amount, but not much more. Around this time in 2023, the 20k in the 1 year bond matures; you could then put that in an instant access account which only pays interest annually - which would be in the 24/25 tax year, when you should have another £500 without paying tax on it (assuming the rules stay the same ...).

Great thanks so much. If I don't have a cash isa now I presume to open one I don't want a fixed one as will need to open another is that correct?
Thanks

I'm not sure what you're asking - you could open a 1 year fixed term ISA now, and you should still be able to open another ISA, either fixed term for 1 year, or easy access, with the same provider or a different one, after the start of the next tax year. What I don't know is what happens to the money in a fixed term ISA at the end of the fixed term - I presume they put it into an easy access ISA by default, but that would be something to check and remember.

Try and balance the possible, or likely, time you'll want access to the money as a house deposit against the fixed term interest (and, for ISAs, penalty for early withdrawal) offers that are available.

smithers1981

Premium bonds tax efficient option 

batchy2005

EthicsGradient said:

batchy2005 said:

EthicsGradient said:

Yes, that's right - you can contribute up to 20k to ISAs each tax year, but at the start of each new tax year, you can contribute another 20k, and that can be to a new ISA, while you continue to hold the earlier one (and you are allowed to transfer existing ISAs to a different manager, if you want). Or you can contribute it to your existing one.

As an example of what you might do (I Am Not An Adviser, of course):

20k into Santander easy access eSaver 2.75% with monthly interest pays you £45.33/month - 5 months in the current tax year, then 1 month in the next one, when you close it and put that in a new cash ISA
20k into Kent Reliance BS 1 year bond 4.45% with monthly interest pays you £72.67/month - 5 months in current year, and 7 in next. 
20k into a cash ISA now.

This tax year: 5*45.33+5*72.67 = £590 - uses all your 0% tax amount, but not much more
Next tax year: 1*45.33+7*72.67 = £554.02 - again, uses all the 0% amount, but not much more. Around this time in 2023, the 20k in the 1 year bond matures; you could then put that in an instant access account which only pays interest annually - which would be in the 24/25 tax year, when you should have another £500 without paying tax on it (assuming the rules stay the same ...).

Great thanks so much. If I don't have a cash isa now I presume to open one I don't want a fixed one as will need to open another is that correct?
Thanks

I'm not sure what you're asking - you could open a 1 year fixed term ISA now, and you should still be able to open another ISA, either fixed term for 1 year, or easy access, with the same provider or a different one, after the start of the next tax year. What I don't know is what happens to the money in a fixed term ISA at the end of the fixed term - I presume they put it into an easy access ISA by default, but that would be something to check and remember.

Try and balance the possible, or likely, time you'll want access to the money as a house deposit against the fixed term interest (and, for ISAs, penalty for early withdrawal) offers that are available.

Sorry wasn't that clear was I!. I was thinking if I opened an isa now say fixed till 2023 that would use my 20k allowance. If I opened another in April 2023 then I can't have another 20k allowance can I? As the money would be locked in till October and I suppose I would get taxed for a few months but that tax would be in the following tax year that correct? !
Thanks again