To take a lump sum to put into savings account or not

hubb

dunstonh said:

I have just requested another quote and pretty shocked to find how much it has dropped to £10,949.85 with £136.88 a month.

Are you referring to an annuity quote projection?  It sounds like it.

Assumptions also change as well as the values.   Do the assumptions meet your objectives?   

What would anyone else do in my shoes ?

I woudlnt be buying an annuity.  But thats me.

I wouldn't also be using a synthetic projection, that typically understates reality by being pessimistic as a reasonable guide to my future.

This is using the official pension website benefit modler 

hubb

Scot_39 said:

hubb said:

The Marcus account is an Online Savings. 

I am self employed with fluctuating earnings (media production) My last yearly income on this tax return was a smidgen under £17070 (including tax deductible expenses) so it's hard to tell what the next return will bring from multiple income streams.

Of course I don't need that much capital, but will need access to some of it. So am I right in thinking if my earnings are over £17070 this year my savings interest could nudge me up into a high tax bracket which will be counter productive ? So it would be wise then to put as much as I can into an ISA account which is tax free.

With your savings account - you can match it's 3% return - with full access in a tax free ISA at the same bank (others pay slightly lower rates on ISA's as a general rule - especially "fixed" (*) term ones).

Earnings have one nil rate band - your nominal IT Personal Allowance of £12570  and are taxed relative to that.

Your savings actually have 2 nil rate bands.

https://www.gov.uk/apply-tax-free-interest-on-savings

The starting savings rate - £5000 - but reduces for every pound you earn above the PA - £12570

And the personal savings allowance - £1000 for basic, £500 for upper rate

So using the 3% and 20% - and this is assuming your self employment - doesn't interfere - with the above

Say £17070 earnings + £1500 taxable interest - you pay tax on 17070-12570 @ 20% - so on £4500

That leaves 5000-4500 = 500 of the savings starting rate and of course your PSA of £1000 - so can earn that £1500 taxable interest tax free as well.

So £17070 is merely the level to avoid paying any tax on the £1500 savings.

(As the nil rate starting band on savings reduces by a pound for every pound above IT PA.  Nominally = £12570 - but not for all.)

If your salary goes to £17570 or above - 5000 or above the IT PA - then you have "used up" all of the potential starting band nil band on savings - and note it's only on savings - and only have the £1000 PSA nil band on savings - so £500 also becomes taxable at 20% = £100 tax.

Your actual "wages" tax figures and rates would not change one bit in any of this - sorry if I implied they would. 

Only the tax liability for your savings - you could need to pay back tax on your savings to HMRC - as tax is now paid gross by banks and B Socs.

You would have earned the £1500 in the account - but the tax man is notified of all income, add savings to your earnings, calc your liability - using the rules for the nil band, and then bill you - or more likely reduce your tax code to claim it back from future earnings. 

Or if you are self assessing for expenses - after declaring it when you do your returns.

So although £100 is not a lot - saving the mental exercise of tracking back and this year taxes etc - through years of coding notices is a pain - that is easily avoided. By simply moving some of the cash to an ISA.

https://www.moneysavingexpert.com/savings/isa-guide-savings-without-tax/

ISA maximum contribution is capped - the April 5th deadline is looming for this tax years 20k allowance - but you get another £20k allowance next tax year - from Thursday - and at 3% for 20k that reduces your taxable interest by £600 each time.

(*) I mentioned higher fixed rates of 4%+ right now - but most UK fixed term ISAs allow withdrawals - some partial - some closure - for a fee - 60-90 days interest on amount withdrawn etc.  And some on line banks allow you to mix say 10k in a fix and 10k instant in same tax year.

If you have a good year - earn more - you may end up with more savings - and expose more interest to tax.

(Some of my accounts are yet to increase in response with the last 0.25% base rate - even if only 0.1 - 0.15% - Marcus ?)

Come the 6th - I will be online opening new ISA - and shifting taxable to tax free

The PSA remains at £1000 - until to you hit the upper rate threshold (40% tax, £50.x k gross etc ) - which is possibly a stretch from c£17K - when it drops to £500.

So until you hit upper rate - you would only ever pay £100 on £1500 interest

It was just your original post - suggested you were seeking to avoid paying higher taxes.

Thank you so much for this detsiled Information. I appreciate the time you have taken with this. A bit challenging to fully understand all of it but I get the general idea which is I could move 20k to an ISA (preferably Marcus) on, and not before the 6th thus avoiding the taxable interest earned in the savings, thus avoiding going over the £1000 allowance threshold. 

Dazed_and_C0nfused

hubb said:

Scot_39 said:

hubb said:

The Marcus account is an Online Savings. 

I am self employed with fluctuating earnings (media production) My last yearly income on this tax return was a smidgen under £17070 (including tax deductible expenses) so it's hard to tell what the next return will bring from multiple income streams.

Of course I don't need that much capital, but will need access to some of it. So am I right in thinking if my earnings are over £17070 this year my savings interest could nudge me up into a high tax bracket which will be counter productive ? So it would be wise then to put as much as I can into an ISA account which is tax free.

With your savings account - you can match it's 3% return - with full access in a tax free ISA at the same bank (others pay slightly lower rates on ISA's as a general rule - especially "fixed" (*) term ones).

Earnings have one nil rate band - your nominal IT Personal Allowance of £12570  and are taxed relative to that.

Your savings actually have 2 nil rate bands.

https://www.gov.uk/apply-tax-free-interest-on-savings

The starting savings rate - £5000 - but reduces for every pound you earn above the PA - £12570

And the personal savings allowance - £1000 for basic, £500 for upper rate

So using the 3% and 20% - and this is assuming your self employment - doesn't interfere - with the above

Say £17070 earnings + £1500 taxable interest - you pay tax on 17070-12570 @ 20% - so on £4500

That leaves 5000-4500 = 500 of the savings starting rate and of course your PSA of £1000 - so can earn that £1500 taxable interest tax free as well.

So £17070 is merely the level to avoid paying any tax on the £1500 savings.

(As the nil rate starting band on savings reduces by a pound for every pound above IT PA.  Nominally = £12570 - but not for all.)

If your salary goes to £17570 or above - 5000 or above the IT PA - then you have "used up" all of the potential starting band nil band on savings - and note it's only on savings - and only have the £1000 PSA nil band on savings - so £500 also becomes taxable at 20% = £100 tax.

Your actual "wages" tax figures and rates would not change one bit in any of this - sorry if I implied they would. 

Only the tax liability for your savings - you could need to pay back tax on your savings to HMRC - as tax is now paid gross by banks and B Socs.

You would have earned the £1500 in the account - but the tax man is notified of all income, add savings to your earnings, calc your liability - using the rules for the nil band, and then bill you - or more likely reduce your tax code to claim it back from future earnings. 

Or if you are self assessing for expenses - after declaring it when you do your returns.

So although £100 is not a lot - saving the mental exercise of tracking back and this year taxes etc - through years of coding notices is a pain - that is easily avoided. By simply moving some of the cash to an ISA.

https://www.moneysavingexpert.com/savings/isa-guide-savings-without-tax/

ISA maximum contribution is capped - the April 5th deadline is looming for this tax years 20k allowance - but you get another £20k allowance next tax year - from Thursday - and at 3% for 20k that reduces your taxable interest by £600 each time.

(*) I mentioned higher fixed rates of 4%+ right now - but most UK fixed term ISAs allow withdrawals - some partial - some closure - for a fee - 60-90 days interest on amount withdrawn etc.  And some on line banks allow you to mix say 10k in a fix and 10k instant in same tax year.

If you have a good year - earn more - you may end up with more savings - and expose more interest to tax.

(Some of my accounts are yet to increase in response with the last 0.25% base rate - even if only 0.1 - 0.15% - Marcus ?)

Come the 6th - I will be online opening new ISA - and shifting taxable to tax free

The PSA remains at £1000 - until to you hit the upper rate threshold (40% tax, £50.x k gross etc ) - which is possibly a stretch from c£17K - when it drops to £500.

So until you hit upper rate - you would only ever pay £100 on £1500 interest

It was just your original post - suggested you were seeking to avoid paying higher taxes.

Thank you so much for this detsiled Information. I appreciate the time you have taken with this. A bit challenging to fully understand all of it but I get the general idea which is I could move 20k to an ISA (preferably Marcus) on, and not before the 6th thus avoiding the taxable interest earned in the savings, thus avoiding going over the £1000 allowance threshold. 

Yes but don't forget financially 4% taxed at basic rate is better than tax exempt 3%.

hubb

Dazed_and_C0nfused said:

Yes but don't forget financially 4% taxed at basic rate is better than tax exempt 3%.

The Marcus account is 3% not 4%

Dazed_and_C0nfused

hubb said:

Dazed_and_C0nfused said:

Yes but don't forget financially 4% taxed at basic rate is better than tax exempt 3%.

The Marcus account is 3% not 4%

It was just meant to be a generic example, not relating to specific products.

But if you are paying tax on 3% (gross) then a basic rate payer would need the ISA to pay 2.41% to beat it.

hubb

Dazed_and_C0nfused said:

hubb said:

Dazed_and_C0nfused said:

Yes but don't forget financially 4% taxed at basic rate is better than tax exempt 3%.

The Marcus account is 3% not 4%

It was just meant to be a generic example, not relating to specific products.

But if you are paying tax on 3% (gross) then a basic rate payer would need the ISA to pay 2.41% to beat it.

I think the Marcus ISAs are paying 3% according to Scott's post above. I'll look into it. 

Scot_39

hubb said:

Scot_39 said:

hubb said:

The Marcus account is an Online Savings. 

I am self employed with fluctuating earnings (media production) My last yearly income on this tax return was a smidgen under £17070 (including tax deductible expenses) so it's hard to tell what the next return will bring from multiple income streams.

Of course I don't need that much capital, but will need access to some of it. So am I right in thinking if my earnings are over £17070 this year my savings interest could nudge me up into a high tax bracket which will be counter productive ? So it would be wise then to put as much as I can into an ISA account which is tax free.

With your savings account - you can match it's 3% return - with full access in a tax free ISA at the same bank (others pay slightly lower rates on ISA's as a general rule - especially "fixed" (*) term ones).

Earnings have one nil rate band - your nominal IT Personal Allowance of £12570  and are taxed relative to that.

Your savings actually have 2 nil rate bands.

https://www.gov.uk/apply-tax-free-interest-on-savings

The starting savings rate - £5000 - but reduces for every pound you earn above the PA - £12570

And the personal savings allowance - £1000 for basic, £500 for upper rate

So using the 3% and 20% - and this is assuming your self employment - doesn't interfere - with the above

Say £17070 earnings + £1500 taxable interest - you pay tax on 17070-12570 @ 20% - so on £4500

That leaves 5000-4500 = 500 of the savings starting rate and of course your PSA of £1000 - so can earn that £1500 taxable interest tax free as well.

So £17070 is merely the level to avoid paying any tax on the £1500 savings.

(As the nil rate starting band on savings reduces by a pound for every pound above IT PA.  Nominally = £12570 - but not for all.)

If your salary goes to £17570 or above - 5000 or above the IT PA - then you have "used up" all of the potential starting band nil band on savings - and note it's only on savings - and only have the £1000 PSA nil band on savings - so £500 also becomes taxable at 20% = £100 tax.

Your actual "wages" tax figures and rates would not change one bit in any of this - sorry if I implied they would. 

Only the tax liability for your savings - you could need to pay back tax on your savings to HMRC - as tax is now paid gross by banks and B Socs.

You would have earned the £1500 in the account - but the tax man is notified of all income, add savings to your earnings, calc your liability - using the rules for the nil band, and then bill you - or more likely reduce your tax code to claim it back from future earnings. 

Or if you are self assessing for expenses - after declaring it when you do your returns.

So although £100 is not a lot - saving the mental exercise of tracking back and this year taxes etc - through years of coding notices is a pain - that is easily avoided. By simply moving some of the cash to an ISA.

https://www.moneysavingexpert.com/savings/isa-guide-savings-without-tax/

ISA maximum contribution is capped - the April 5th deadline is looming for this tax years 20k allowance - but you get another £20k allowance next tax year - from Thursday - and at 3% for 20k that reduces your taxable interest by £600 each time.

(*) I mentioned higher fixed rates of 4%+ right now - but most UK fixed term ISAs allow withdrawals - some partial - some closure - for a fee - 60-90 days interest on amount withdrawn etc.  And some on line banks allow you to mix say 10k in a fix and 10k instant in same tax year.

If you have a good year - earn more - you may end up with more savings - and expose more interest to tax.

(Some of my accounts are yet to increase in response with the last 0.25% base rate - even if only 0.1 - 0.15% - Marcus ?)

Come the 6th - I will be online opening new ISA - and shifting taxable to tax free

The PSA remains at £1000 - until to you hit the upper rate threshold (40% tax, £50.x k gross etc ) - which is possibly a stretch from c£17K - when it drops to £500.

So until you hit upper rate - you would only ever pay £100 on £1500 interest

It was just your original post - suggested you were seeking to avoid paying higher taxes.

Thank you so much for this detsiled Information. I appreciate the time you have taken with this. A bit challenging to fully understand all of it but I get the general idea which is I could move 20k to an ISA (preferably Marcus) on, and not before the 6th thus avoiding the taxable interest earned in the savings, thus avoiding going over the £1000 allowance threshold. 

Unless you have already used this years ISA deposit allowance - the £20,000 - and as seem happy (at least for now) with Marcus and with 3% for now - (your not locking in - ISAs can be tranferred - but you have to let banks do it to maintain tax free status) - there is NO reason to wait until the 6th - unless Marcus are saying they wont accept a new ISA account + deposit now against this tax year ending on the 5th.

If they allow and you actually wanted to you could probably open the ISA before 5th - transfer the money across almost instantly between accounts - and that would be this tax years (Apr 6 2022 to Apr 5 2023)  £20,000 allowance you were using.

But please make sure you read the terms of any account though.  I have not - as I said above - looked beyond main savings page.

Leaving the full 20k allowance for next year - whilst you consider the options - potential do the same next tax year - or find a higher rate say 1 yr fix if comfortable etc.

If you don't use this tax years 20k allowance - it's gone for ever.

But I realise that doesn't leave you much thinking time.

Any one full 20k into ISA from / to 3% - this tax year or next - would leave you with a small margin on the PSA £1000 (3% on 30k = £900 taxable - so £100 headroom against PSA before any tax on it - and any leftover starting rate if dont earn £17570 or more ).  Using both allowances - would give you a much bigger margin.

Scot_39

Dazed_and_C0nfused said:

hubb said:

Scot_39 said:

hubb said:

The Marcus account is an Online Savings. 

I am self employed with fluctuating earnings (media production) My last yearly income on this tax return was a smidgen under £17070 (including tax deductible expenses) so it's hard to tell what the next return will bring from multiple income streams.

Of course I don't need that much capital, but will need access to some of it. So am I right in thinking if my earnings are over £17070 this year my savings interest could nudge me up into a high tax bracket which will be counter productive ? So it would be wise then to put as much as I can into an ISA account which is tax free.

With your savings account - you can match it's 3% return - with full access in a tax free ISA at the same bank (others pay slightly lower rates on ISA's as a general rule - especially "fixed" (*) term ones).

Earnings have one nil rate band - your nominal IT Personal Allowance of £12570  and are taxed relative to that.

Your savings actually have 2 nil rate bands.

https://www.gov.uk/apply-tax-free-interest-on-savings

The starting savings rate - £5000 - but reduces for every pound you earn above the PA - £12570

And the personal savings allowance - £1000 for basic, £500 for upper rate

So using the 3% and 20% - and this is assuming your self employment - doesn't interfere - with the above

Say £17070 earnings + £1500 taxable interest - you pay tax on 17070-12570 @ 20% - so on £4500

That leaves 5000-4500 = 500 of the savings starting rate and of course your PSA of £1000 - so can earn that £1500 taxable interest tax free as well.

So £17070 is merely the level to avoid paying any tax on the £1500 savings.

(As the nil rate starting band on savings reduces by a pound for every pound above IT PA.  Nominally = £12570 - but not for all.)

If your salary goes to £17570 or above - 5000 or above the IT PA - then you have "used up" all of the potential starting band nil band on savings - and note it's only on savings - and only have the £1000 PSA nil band on savings - so £500 also becomes taxable at 20% = £100 tax.

Your actual "wages" tax figures and rates would not change one bit in any of this - sorry if I implied they would. 

Only the tax liability for your savings - you could need to pay back tax on your savings to HMRC - as tax is now paid gross by banks and B Socs.

You would have earned the £1500 in the account - but the tax man is notified of all income, add savings to your earnings, calc your liability - using the rules for the nil band, and then bill you - or more likely reduce your tax code to claim it back from future earnings. 

Or if you are self assessing for expenses - after declaring it when you do your returns.

So although £100 is not a lot - saving the mental exercise of tracking back and this year taxes etc - through years of coding notices is a pain - that is easily avoided. By simply moving some of the cash to an ISA.

https://www.moneysavingexpert.com/savings/isa-guide-savings-without-tax/

ISA maximum contribution is capped - the April 5th deadline is looming for this tax years 20k allowance - but you get another £20k allowance next tax year - from Thursday - and at 3% for 20k that reduces your taxable interest by £600 each time.

(*) I mentioned higher fixed rates of 4%+ right now - but most UK fixed term ISAs allow withdrawals - some partial - some closure - for a fee - 60-90 days interest on amount withdrawn etc.  And some on line banks allow you to mix say 10k in a fix and 10k instant in same tax year.

If you have a good year - earn more - you may end up with more savings - and expose more interest to tax.

(Some of my accounts are yet to increase in response with the last 0.25% base rate - even if only 0.1 - 0.15% - Marcus ?)

Come the 6th - I will be online opening new ISA - and shifting taxable to tax free

The PSA remains at £1000 - until to you hit the upper rate threshold (40% tax, £50.x k gross etc ) - which is possibly a stretch from c£17K - when it drops to £500.

So until you hit upper rate - you would only ever pay £100 on £1500 interest

It was just your original post - suggested you were seeking to avoid paying higher taxes.

Thank you so much for this detsiled Information. I appreciate the time you have taken with this. A bit challenging to fully understand all of it but I get the general idea which is I could move 20k to an ISA (preferably Marcus) on, and not before the 6th thus avoiding the taxable interest earned in the savings, thus avoiding going over the £1000 allowance threshold. 

Yes but don't forget financially 4% taxed at basic rate is better than tax exempt 3%.

Last I looked best instant rates were c 3.4 app - or 3.3 online - pay 20% tax on all interest in either - thats 2.7 / 2.64

Or to beat marcus 3.0 isa aer - if all the interest was above both the nil rates - would need 3.75 aer.

If the opp wants to look at say 1 yr fix when has time next year - 4.5 taxable full lock away =  3.6 net vs 4.15 untaxable in best 1 yr ISA - recoverable with in that case significant (120 day interest iirc) penalty if desperate

But 60 day hit on partial withdrwaal available elsewhere for not much less.  And flexible isas he can dip in and out of - or portfolio isas with ability to mix fix and instant available from that years 20k - all available elsewhere too.

But these are things the OP will need time to think about.

Anyone saving at emergency rate - probably been completely ignoring tax - on moderate pots - for 5-10 years. It's a mind set transition for many.

But we digress - as not sure the OP has an answer to - the original ? ....remove or not ?

(Sorry I realise that's in no small part my fault)

Qyburn

hubb said:

Thank you so much for this detsiled Information. I appreciate the time you have taken with this. A bit challenging to fully understand all of it but I get the general idea which is I could move 20k to an ISA (preferably Marcus) on, and not before the 6th thus avoiding the taxable interest earned in the savings, thus avoiding going over the £1000 allowance threshold. 

Why not before the 6th? Withdrawing £20K from your Marcus saver won't trigger any additional interest in this tax year or next.  

hubb

I see what you mean now (I am not familiar with ISAs) , If I transfer 20K before the 6th, it will all be included in this tax year. And after the 6th I could transfer even more money which will also give me a fresh 20K allowance. So if I had another 20k spare, that would be like having 40k tax free between the two years ?

I would prefer it not to be locked in as you never know what might happen and I don't have a disposable income, even though I am self employed.