Where to put legacy outside of tax free wrappers?

Doctor_Who

Pat38493 said:

NedS said:

For the purposes of minimising tax, look at short duration government gilts with low coupons, maybe building a bond ladder with maturity dates to allow feeding into your ISA(s) upon maturity. You can purchase and hold these in a GIA account outside of any tax wrapper.

A UK government gilt such as TN25 currently yields 5.28% but the coupon is only 0.25% (taxable) and the rest comes from a capital gain when holding to maturity which is tax free. So TN25 will currently net a 40% tax payer a return of 5.17% after tax. See here:

https://www.yieldgimp.com/gilt-yields

So the repayment of the face value of the gilt is tax free then, even outside of a pension or ISA wrapper?

Yes, gilts are exempt from CGT, so even in a GIA any gains are free of tax. The coupon is still taxable.

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

Pat38493

Doctor_Who said:

Pat38493 said:

NedS said:

For the purposes of minimising tax, look at short duration government gilts with low coupons, maybe building a bond ladder with maturity dates to allow feeding into your ISA(s) upon maturity. You can purchase and hold these in a GIA account outside of any tax wrapper.

A UK government gilt such as TN25 currently yields 5.28% but the coupon is only 0.25% (taxable) and the rest comes from a capital gain when holding to maturity which is tax free. So TN25 will currently net a 40% tax payer a return of 5.17% after tax. See here:

https://www.yieldgimp.com/gilt-yields

So the repayment of the face value of the gilt is tax free then, even outside of a pension or ISA wrapper?

Yes, gilts are exempt from CGT, so even in a GIA any gains are free of tax. The coupon is still taxable.

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

Interesting - so you could build a gilt ladder in a taxable account to achieve something like the BOA base rate of return with no tax payable (and no limit on the amount involved).  Why isn't everyone doing that then?  Maybe because it was too much hassle when interest rates were 0.5% but now it's not.

Albermarle

handful said:

dunstonh said:

Typically, once you have used pension and ISA allowance, you move onto unwrapped (GIA) or offshore bonds (more complicated but can be viable in a smaller range of cases) or onshore bond (rarely viable nowadays but a small niche may fit)

Presumably I can put money into my II SIPP account and they will keep it separate from my "tax free pension wrapper" ?

Not quite sure what you mean with this.
With most investment platforms, you can have a ;
Pension/SIPP account
ISA account
General investment account ( the actual name varies but the main point is that it is not tax wrapped)

If you are registered with the platform, II in this case, then you can have all three types of account open at the same time, but they will always be kept separate.

With the non tax wrapped account there is more admin. You have to keep records of any capital gains and dividends paid from your investments. Even if you are not actually liable for any tax. 

Doctor_Who

Pat38493 said:

Doctor_Who said:

Pat38493 said:

NedS said:

For the purposes of minimising tax, look at short duration government gilts with low coupons, maybe building a bond ladder with maturity dates to allow feeding into your ISA(s) upon maturity. You can purchase and hold these in a GIA account outside of any tax wrapper.

A UK government gilt such as TN25 currently yields 5.28% but the coupon is only 0.25% (taxable) and the rest comes from a capital gain when holding to maturity which is tax free. So TN25 will currently net a 40% tax payer a return of 5.17% after tax. See here:

https://www.yieldgimp.com/gilt-yields

So the repayment of the face value of the gilt is tax free then, even outside of a pension or ISA wrapper?

Yes, gilts are exempt from CGT, so even in a GIA any gains are free of tax. The coupon is still taxable.

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

Interesting - so you could build a gilt ladder in a taxable account to achieve something like the BOA base rate of return with no tax payable (and no limit on the amount involved).  Why isn't everyone doing that then?  Maybe because it was too much hassle when interest rates were 0.5% but now it's not.

Minimal tax payable, not no tax payable (the coupon is taxable). It's not as easy as just opening a fixed-term savings account! Gilts have different coupons and redemption dates, so you need to find one or more that fit your criteria. They also aren't available to buy online on many platforms (II have some gilts to buy online), you might have to phone the broker. Remember that they mature at face value and it's possible to buy gilts at above par, which means you would guarantee a capital loss at redemption (these gilts would typically have a high coupon). I've bought some TN24 and TN25 gilts, by my calculations to achieve a similar return over ~6 months (TN24) or ~18 months (TN25) I would need the equivalent fixed-term accounts to pay 6.5-7% before tax.

Qyburn

handful said:

At current savings rates I can only save around £10k before hitting my interest allowance of £500 (40% tax payer) Also can save £20k in the OH name (20% tax payer)

It you max out your pension, you won't be a 40% tax payer in that year.

squirrelpie

handful said:

Presumably I can put money into my II SIPP account and they will keep it separate from my "tax free pension wrapper" ?

No, SIPP accounts are tax free pension wrappers. You may be able to open another account with II that is not a SIPP account but is a general account instead. I don't know the particular detail of II accounts.

Doctor_Who

squirrelpie said:

handful said:

Presumably I can put money into my II SIPP account and they will keep it separate from my "tax free pension wrapper" ?

No, SIPP accounts are tax free pension wrappers. You may be able to open another account with II that is not a SIPP account but is a general account instead. I don't know the particular detail of II accounts.

I have SIPP, S&SISA and GIA accounts with II, everything is kept separate. You can do internal transfers of cash between accounts upto certain limits (e.g. £20K ISA allowance).

handful

Qyburn said:

handful said:

At current savings rates I can only save around £10k before hitting my interest allowance of £500 (40% tax payer) Also can save £20k in the OH name (20% tax payer)

It you max out your pension, you won't be a 40% tax payer in that year.

That's interesting, thanks. I will be maxing out but it's not with salary sacrifice. Does that matter?

handful

Doctor_Who said:

squirrelpie said:

handful said:

Presumably I can put money into my II SIPP account and they will keep it separate from my "tax free pension wrapper" ?

No, SIPP accounts are tax free pension wrappers. You may be able to open another account with II that is not a SIPP account but is a general account instead. I don't know the particular detail of II accounts.

I have SIPP, S&SISA and GIA accounts with II, everything is kept separate. You can do internal transfers of cash between accounts upto certain limits (e.g. £20K ISA allowance).

That's what I was thinking but worded badly! How does the tax on investments work if you exceed the £500/£1000 threshold? Presumably I would have to declare it as II wouldn't know what other interest I might be earning elsewhere?

handful

Albermarle said:

handful said:

dunstonh said:

Typically, once you have used pension and ISA allowance, you move onto unwrapped (GIA) or offshore bonds (more complicated but can be viable in a smaller range of cases) or onshore bond (rarely viable nowadays but a small niche may fit)

Presumably I can put money into my II SIPP account and they will keep it separate from my "tax free pension wrapper" ?

Not quite sure what you mean with this.
With most investment platforms, you can have a ;
Pension/SIPP account
ISA account
General investment account ( the actual name varies but the main point is that it is not tax wrapped)

If you are registered with the platform, II in this case, then you can have all three types of account open at the same time, but they will always be kept separate.

With the non tax wrapped account there is more admin. You have to keep records of any capital gains and dividends paid from your investments. Even if you are not actually liable for any tax. 

Thanks! You have just answered a question I asked on a later post, missed yours earlier! Still getting used to the new layout!