Have I got this savings lark wrong in terms of tax benefits? 23 December 2022 at 2:17PM in Savings & investments 11 replies 1K views

Iiyama

I will try to keep this as succinct and brief as I can... But I would appreciate a check to see if by not utilizing our ISA allowance we could be heading for a tax bill!

We retired in our fifties and took a good NHS pension. Had a financial advisor but any gains we were making were swallowed up in fees so savings never increased. So we went out alone with our financial management.

Our joint income after tax from pension equates to around £3,200 plus I can earn perhaps £2,500 per annum from Adhoc work taxed at PAYE.

The savings situation now is as follows :

Around £68,000 in savings account with at 2.50% no access restrictions

Around £30.000 in a fixed for 1-year savings account at 2.75%

Around £100,000 in a fixed savings account at 3.50%

Around £35,000 in Vanguard Lifestratergy (ISA I think)

Around £15,000 in standard bank account.

If I have worked this out correctly and understood the savings allowance. The accounts above will earn more than £2,000 per year. Do I need to move some of the above into a cash ISA before April to benefit from the tax saving and then move more again after April 2023 to fully benefit from the tax free allowance?

Advice as ever appreciated.

xylophone

We retired in our fifties and took a good NHS pension.

You each have an NHS pension?

Our joint income after tax 

Savings/dividend/ ISA allowances work on an individual basis.

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

And have you both obtained state pension forecasts?

https://www.gov.uk/check-state-pension

MX5huggy

It’s difficult to answer because you’ve mashed the 2 of you together, for tax purposes you are individuals (with the possibility of some connections). Then you’ve given I hope monthly figures but tax is based on Annual totals. 

Both of you get £1000 savings allowance each year. 

If you’ve joint accounts the interest is split 50/50. 

Check the Vanguard is in an ISA first who’s is it? (ISA can’t be joint)

Then don’t let the possibility of paying 20% tax stop you going for the best rate. 3% taxed is the same as 2.4% in an ISA. 

Iiyama

xylophone said:

We retired in our fifties and took a good NHS pension.

You each have an NHS pension?

Our joint income after tax 

Savings/dividend/ ISA allowances work on an individual basis.

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

And have you both obtained state pension forecasts?

https://www.gov.uk/check-state-pension

Thanks for taking the time to reply.

Yes, we both have full NHS pensions and took the maximum lump sum.

Sorry, I wasn't clear. Aware ISA allowance is £20,000 each.

Yes, both have state pension forecasts which are fine. I can top mine up for around £3,500 but its only an extra £20 a week so not bothered at present.

NoMore

Iiyama said:

Yes, both have state pension forecasts which are fine. I can top mine up for around £3,500 but its only an extra £20 a week so not bothered at present.

ONLY £20 per week! That's 1k a year, 3 and 1/2 years of getting your state pension and you have your money back, live significantly into your 70's and 80's or even longer and you have had a huge RoI, way more than any savings account.

Iiyama

NoMore said:

Iiyama said:

Yes, both have state pension forecasts which are fine. I can top mine up for around £3,500 but its only an extra £20 a week so not bothered at present.

ONLY £20 per week! That's 1k a year, 3 and 1/2 years of getting your state pension and you have your money back, live significantly into your 70's and 80's or even longer and you have had a huge RoI, way more than any savings account.

When you break it down like that I agree makes sense!

Albermarle

This might help
Tax-free savings: check if you're eligible - Money Saving Expert

Yes, both have state pension forecasts which are fine. I can top mine up for around £3,500 but its only an extra £20 a week so not bothered at present.

Well to buy a full inflation linked pension of £20 per week, in the open market , would cost about £40K, so £3.5K is an absolute bargain.

Had a financial advisor but any gains we were making were swallowed up in fees so savings never increased. So we went out alone with our financial management.

Normally advisors deal mainly with investments, rather than cash savings. Or at least they normally only charge for looking after the investments. So are you saying they charged for looking after cash savings, which is what you mainly have got?
In any case for a couple with two guaranteed NHS pensions, you should be looking to take a bit more risk and have more investments and less cash.

molerat

You need to look at the overall picture of your individual incomes.

Dazed_and_C0nfused

Iiyama said:

xylophone said:

We retired in our fifties and took a good NHS pension.

You each have an NHS pension?

Our joint income after tax 

Savings/dividend/ ISA allowances work on an individual basis.

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

And have you both obtained state pension forecasts?

https://www.gov.uk/check-state-pension

Thanks for taking the time to reply.

Yes, we both have full NHS pensions and took the maximum lump sum.

Sorry, I wasn't clear. Aware ISA allowance is £20,000 each.

Yes, both have state pension forecasts which are fine. I can top mine up for around £3,500 but its only an extra £20 a week so not bothered at present.

If that isn't enough to be bothered about you really don't need to lose any sleep over a bit of tax on your interest.

Missing out on £1,040/year of triple lock inflation proofed income which could be paid for 35+ years all for the sake of £3,500 is not an opportunity many MSE posters would want to miss out on!

xylophone

only an extra £20 a week ......!

£1040 a year.......

And had you missed the fact that the full NSP will be over £203 a week in 2023?

https://www.gov.uk/voluntary-national-insurance-contributions

Iiyama

Thanks for the advice so far.

I can afford to top up the additional 4 years NI to get the maximum state pension so clearly I need to do that.

The tax issue on savings remains a concern that I need to address.  As I don't appear to have paid tax on my savings for 3 years I need to address this to save any unintended tax situation arising. Is this best done with an accountant?

Albermarie - The FA looked after investments, not cash, and offered no advice on the cash hence initially we put it in a low-interest savings account and current account! It was after that I moved it as explained in my first post.