Lump sum investment

Band7

Whether tax becomes due depends on the type of account chosen (e.g. ISA, SIPP) and on the total taxable income of the person the accounts are held in.  

Eco_Miser

raven111 said:

I’m looking to invest/save £300k to generate a monthly income. I want my £300k to be safe. Where’s the best place to put it? Thanks..

You don't actually need to generate a monthly income if other options, such a fixed term deposit paying interest annually, would give more income.

Simply decide what monthly amount to take (having regard to the annual interest available), and put twelve times that in an easy access account, and draw your monthly income from that. Repeat each year, or have a ladder of one, two, three, four, five year term deposits  

raven111

Not sure I understand the last comment about putting 12 x amount required into an easy access account. Can you explain further?

AlanP_2

raven111 said:

Not sure I understand the last comment about putting 12 x amount required into an easy access account. Can you explain further?

If you want say £1k per month then put £12k in an easy access account.

Put the balance, £288k in this case, in the highest paying accounts you can find (being aware of FSCS limit).

Whether these pay monthly, quarterly or annually doesn't matter now as you pay yourself from the easy access account.

Band7

Assuming you and your wife are both taxpayers, you can each have either £1,000 (basic rate) or £500 tax-free interest per annum. You also need to submit an annual self-assessment if either of you receives more than £10,000 taxable interest per annum. At 5% AER, £300k pays £15,000 gross interest. You'd be left with £12,000 after tax unless you use tax shelters.

It would therefore make sense if you would put £20k each into an ISA each tax year, as interest in ISA accounts is tax free. The best rate for ISAs which pay monthly interest is currently 4.4%. For a basic rate tax payer, this is equivalent to 5.5% from a taxable account - more than you can currently get in taxable accounts. 

Once the ISAs are done, you would need to find a home for the remaining £260k (£300k - 2 x £40k) this year. You should plan on putting another 2 x £20k into ISAs in the next financial year and so on, until you have the entire £300k in ISAs. Unfortunately, this will take 8 years, assuming the annual ISA allowance remains at £20k per person.

For your funds you can't put into ISAs yet, there is a huge range of fixed term non-ISA accounts with monthly interest option. If you split the remaining £260k between you and your wife, or if you choose joint accounts, you need to split the money between just two financial institutions, for full FSCS protection.

Millyonare

Depending on one's risk appetite, one should be able to generate a monthly net income roughly around the following levels right now. But there is a need to act fast. Rates today are starting to peak and fall again. Not investment advice, etc.

* Lowest-risk govt saver (e.g. NS&I or PBs) = £500-750 a month

* Low-risk bank savers (e.g. Cash ISA, best fixed rate at Raisin) = £750-1250 a month

* High-risk stockmarket funds (e.g. HFEL) = £1000-2500 a month