How to decide how much to save?

CaptainWales

Hi. I have a lumpsum to save, however very conscious of the taxation of interest as I am very close to the higher rate. How much should this come into the equation? Or should I just stick it all in a savings account and take the taxation "hit". 

jaypers

Max out your ISA allowance and put the rest in the highest paying account you can, taking into consideration how much easy access Vs fixed you want etc. Pay the tax, you’ll still be better off.

InvesterJones

Usually not at all - higher income after tax is still higher income. However there's sometimes a tiny window in which interest tips you into a higher category and the resulting loss of savings allowance means it's a net loss. In such cases it's worth looking at tax wrappers or additional pension contributions to avoid that gap (ISAs, SIPP etc.)

CaptainWales

Thanks - I've maxed out ISA already and considered pension option. Still have a decent lumpsum to invest though and trying to work out whether better to stick it all in one account and get higher interest (but will get taxed on that) or work out how to split across several accounts so I don't go over the £500/£1k interest threshold. 

jaypers

CaptainWales said:

Thanks - I've maxed out ISA already and considered pension option. Still have a decent lumpsum to invest though and trying to work out whether better to stick it all in one account and get higher interest (but will get taxed on that) or work out how to split across several accounts so I don't go over the £500/£1k interest threshold. 

If it’s really close, consider the following things to help tip you back below the 40% tax band after the extra interest earned…….
1) Increase your pension contributions, subsequently reducing your taxable income. Never a bad thing to do anyway.
2) If your company has a Sharepurchase Scheme, look into using it and/or increasing contributions if you have headroom below the maximum allowed. 

3) Donate more to your favourite charities as any Gift Aid aspect can be offset against taxable income, although you’ll probably need to do Self Assessment for HMRC to take this into account. 

wmb194

You could look into Premium Bonds and low coupon gilts where most of the overall return will be in the form tax-free capital gains (you'd need a stockbroker, though).

Albermarle

Premium Bonds is one easy option and sensible for a higher rate taxpayer.

phillw

CaptainWales said:

Hi. I have a lumpsum to save, however very conscious of the taxation of interest as I am very close to the higher rate. How much should this come into the equation? Or should I just stick it all in a savings account and take the taxation "hit". 

It depends on where you are with risk, if you have loads of money sloshing around then you could take some risks with money, so S&S ISA or starting a property rental limited company.

If you are risk averse, max out your pension & cash ISA. If you are married and you trust them, they have ISA/PSA allowances too.

InvesterJones

jaypers said:

CaptainWales said:

Thanks - I've maxed out ISA already and considered pension option. Still have a decent lumpsum to invest though and trying to work out whether better to stick it all in one account and get higher interest (but will get taxed on that) or work out how to split across several accounts so I don't go over the £500/£1k interest threshold. 

If it’s really close, consider the following things to help tip you back below the 40% tax band after the extra interest earned…….

2) If your company has a Sharepurchase Scheme, look into using it and/or increasing contributions if you have headroom below the maximum allowed. 

I thought most share schemes were paid from net salary, so don't contribute to reduction in taxable income?