Where to save money I put aside for tax?

Pizza_the_Action

Hi all,

I am a seafarer and typically qualify for SED (Seafarer's Earnings Deduction) giving me tax relief as I spend over half the year at sea.

That being said, I always put aside the required % of tax for the year until I know I have definitely met the requirements for this (just in case, for any reason, I was not able to work away at sea and so ended up not being eligible for the SED).

So, until my Tax Return is submitted and I am 100% sure I am not due to pay it, the money sits in a 'tax space' within my current account so I don't spend it (I don't consider it my money until I am sure I won't be taxed for it). 

I am looking for advice for a 'better place', such as a savings account, to put this money into so it is earning interest whilst it is just sat there throughout the year until I do my tax return. Any advice is very welcome please.

It can't be any type of account where it is:
1) Locked in/fixed term (as I may have to access it to pay the tax)
2) Could lose money

I am thinking a cash ISA of some sort or an instant access savings account?

Thanks and kind regards

r6mile

If 1) you will be paying money into it regularly, and 2) you want to have some level of access into the account, I would suggest a limited-access ISA or Savings Account.
How much is your tax bill usually? If you will generate interest of less than £1000 (or £500, depending on your tax bracket), then a normal savings account will suffice.

Coventry's Four Access Saver pays 4.5% and allows you to withdraw from the account 4 times per year. There is a six-access version that pays 4.3%.

If you think you will pay tax on interest, then they have an ISA six-access version that pays 4.1% - for example, this is what I use as I have a balance transfer period ending next year so every month I pay into this, and will then withdraw when the 0% period ends.

I like the idea of a limited access account because it stops the temptation of just dipping it into whenever you like. The money is there if you need it, but as you can only access it a few times you have to think carefully about whether you should go into it.

Pizza_the_Action

Thanks for your reply!

I would be paying into it monthly. 

My earnings are within the basic 20% tax; my annual tax would be just below £8,500 so interest would be around £380. 

I don't feel I need a limited access account because I am able to refrain from dipping into it until I know I have met the SED requirements anyway. As I said, I see it as not my money (until I know it is!)

r6mile

In that case, I would simply get the highest-paying savings account. You are more likely to get a high rate with limited access accounts anyway.
At the moment the highest rate is Chip who pays 4.51% - which is easy access but some people have concerns about.
Second highest is the 4.5% Coventry Four Access Saver account I mentioned.

Albermarle

I am thinking a cash ISA of some sort or an instant access savings account?

You can have an instant access Cash ISA. The only differences to a non ISA savings account are;

1) that the interest generated in a cash ISA is always free from tax.

2) Typically the interest rate on  cash ISA's, will be a bit lower than equivalent non ISA account

3) The max you can add to a cash ISA each tax year is £20K

An alternative is Premium Bonds. Max £50K tax free. Average prize rate a little bit less than savings accounts.

Pizza_the_Action

How does this work as a non-taxpayer (due to seafarers exemption)? I am guessing the tax on interest is treated as a separate matter? 

I’ve put it into a savings account (non ISA) at 5%. 

The maximum interest I am likely to get given the amount I set aside for tax would be around £400 p/a. 

I have a fixed saver with 7% rate (max £300 pcm so over a year = £252 interest) 

my other accounts are very low interest rates so as things stand I wouldn’t go over £1000 interest per year - am I right in thinking this is the limit? 

Dazed_and_C0nfused

Pizza_the_Action said:

How does this work as a non-taxpayer (due to seafarers exemption)? I am guessing the tax on interest is treated as a separate matter? 

I’ve put it into a savings account (non ISA) at 5%. 

The maximum interest I am likely to get given the amount I set aside for tax would be around £400 p/a. 

I have a fixed saver with 7% rate (max £300 pcm so over a year = £252 interest) 

my other accounts are very low interest rates so as things stand I wouldn’t go over £1000 interest per year - am I right in thinking this is the limit? 

That would all depend on how your seafarers income is "taxed".

You say your are a non taxpayer so what income me is using your Personal Allowance?

Pizza_the_Action

Seafarers income isn’t taxed providing it meets the requirements of the SED:

https://www.gov.uk/guidance/seafarers-earnings-deduction-tax-relief-if-you-work-on-a-ship

For tax purposes I am a U.K. taxpayer but SED makes me exempt as I am typically working at sea over 220 days a year. I work for a company based outside of the U.K. so don’t have PAYE; I always set aside 20% of my earnings (just in case for some reason work gets cancelled and I don’t fulfil the SED). I submit my tax return via an accountant every year and once the return is completed and I am certain I have met the SED requirement then, and ONLY then, I can save or spend the money I set aside for tax. 

So as far as I can see there’s nothing using my personal allowance. 

badger09

Pizza_the_Action said:

How does this work as a non-taxpayer (due to seafarers exemption)? I am guessing the tax on interest is treated as a separate matter? 

I’ve put it into a savings account (non ISA) at 5%. 

The maximum interest I am likely to get given the amount I set aside for tax would be around £400 p/a. 

I have a fixed saver with 7% rate (max £300 pcm so over a year = £252 interest) 

my other accounts are very low interest rates so as things stand I wouldn’t go over £1000 interest per year - am I right in thinking this is the limit? 

BIB I think you mean a Regular Saver with a fixed interest rate. You won’t get £252 interest though, more like £135, because only the 1st £300 is in the account for the full year. 

See 
https://www.moneysavingexpert.com/savings/regular-savings-calculator/

Pizza_the_Action

Hi, yeah you're right is is a Regular Saver.

Thanks for pointing that out re: interest! D'oh!

I'll prioritise this as a means to amassing savings which are not immediately accessible rather than getting excited about interest 

LHW99

There is also Premium Bonds, which are guaranteed by the Government and tax free. The effective "rate" isn't as good as normal accounts, but gives a chance of more (unlike the lottery IMO)