Breaching £1000 interest in 24/25 - best course of action to minimise tax

Jazzking

Hi all,
Long time reader, infrequent poster, hope you can help with my situation.
Due to substantial stoozing pots in fixes maturing in the summer, regular savers maturing around the same time in Sept and Nov and getting up to £5k balance in each of RBS and Natwest Regular savers I recently realised that I will earn over £1000 interest in 24/25 - likely around £1850 in total.

Chasing the interest has been clearly more worthwhile than I anticipated and I hadn't actually thought that I'd exceed the £1000 PSA so I'm pretty annoyed, and pleased at the same time as, other than better staggering the maturity dates, there's not a lot I could have done, so will have to suck it up and pay the tax through a revised code next year.

My question is now, what do I do with any 'spare' cash - summarised below:

• £20k @ 5.17% in T212 Flexible cash ISA from 23/24 - no contributions yet this year
• £1k in Virgin Current Account at 10% until 31 July 25 (this isn't being touched!)
• £5k in each of RBS and Natwest at 6.17% (so effectively now 4.94% after tax) - interest paid monthly.
• £3k in Skipton at 5.5% (so effectively 4.4%) until January 25 - interest paid in January

I've got other RS maturing in 25/26 which I'll keep a better eye on, but unlikely to get to the £1k interest in total (sadly!).  This costs me around £1125 a month which I pay mostly from my salary, but dip into savings if needed.

It seems to make sense to put RBS, Natwest and Skipton into the ISA, but it's taken such a long time to get to the £5k at £150 a month I'm reluctant to take it out and start again and it's only just below the [variable] ISA rate after tax, currently.
Once the other RS mature next year some will be used to pay off stoozing cards, but I will have about another £10k left over.  Should I just be bunging all this in the best ISA and not overthinking it?

I'm a BR taxpayer, have a workplace pension I overpay into and I am currently overpaying about £125 on my 4.4% mortgage (I know, I know, RS are better... but I've habitually overpaid the mortgage since savings rates were so low)
Kids have savings accounts and JISAs and I'm keen not to muddy the waters too much by having 'my money' in their accounts...

TIA for any comments or suggestions

jimjames

Pay into an ISA to avoid getting taxable interest or accept the minimal tax hit. 6% after tax is still better than getting less interest elsewhere. Could also pay into a pension to get tax relief equivalent to the tax due.

masonic

Premium Bonds are an option, but not a very attractive one at today's rates for a basic rate taxpayer. The focus should always be on the best after tax rate. Cash ISAs do not always make sense, although the rate war between T212 and Chip is keeping them competitive at the moment.

Do you need to maintain this level of cash? Further pension contributions or use of a S&S ISA are alternatives.

Dazed_and_C0nfused

Jazzking said:

Hi all,
Long time reader, infrequent poster, hope you can help with my situation.
Due to substantial stoozing pots in fixes maturing in the summer, regular savers maturing around the same time in Sept and Nov and getting up to £5k balance in each of RBS and Natwest Regular savers I recently realised that I will earn over £1000 interest in 24/25 - likely around £1850 in total.

Chasing the interest has been clearly more worthwhile than I anticipated and I hadn't actually thought that I'd exceed the £1000 PSA so I'm pretty annoyed, and pleased at the same time as, other than better staggering the maturity dates, there's not a lot I could have done, so will have to suck it up and pay the tax through a revised code next year.

My question is now, what do I do with any 'spare' cash - summarised below:

• £20k @ 5.17% in T212 Flexible cash ISA from 23/24 - no contributions yet this year
• £1k in Virgin Current Account at 10% until 31 July 25 (this isn't being touched!)
• £5k in each of RBS and Natwest at 6.17% (so effectively now 4.94% after tax) - interest paid monthly.
• £3k in Skipton at 5.5% (so effectively 4.4%) until January 25 - interest paid in January

I've got other RS maturing in 25/26 which I'll keep a better eye on, but unlikely to get to the £1k interest in total (sadly!).  This costs me around £1125 a month which I pay mostly from my salary, but dip into savings if needed.

It seems to make sense to put RBS, Natwest and Skipton into the ISA, but it's taken such a long time to get to the £5k at £150 a month I'm reluctant to take it out and start again and it's only just below the [variable] ISA rate after tax, currently.
Once the other RS mature next year some will be used to pay off stoozing cards, but I will have about another £10k left over.  Should I just be bunging all this in the best ISA and not overthinking it?

I'm a BR taxpayer, have a workplace pension I overpay into and I am currently overpaying about £125 on my 4.4% mortgage (I know, I know, RS are better... but I've habitually overpaid the mortgage since savings rates were so low)
Kids have savings accounts and JISAs and I'm keen not to muddy the waters too much by having 'my money' in their accounts...

TIA for any comments or suggestions

Highly unlikely you will be paying any tax owed next year.

If 2024-25 you will owe tax on interest then it's likely to be summer/autumn 2025 before HMRC calculate the tax owed and then there default position is to collect the tax via the tax code of the following tax year, 2026-27.

Are you a basic rate taxpayer who has some savings starter rate band to use?

Best net return is generally the best outcome, avoiding tax to be worse off overall isn't very MSE!!

surreysaver

Surely you should aim for the best net return?
80% of a 5% taxable account would be better than 100% of a 3.5% non-taxable ISA, for example 

pecunianonolet

I personally would go through the regular saver list and check which ones pay you interest next tax year and which ones still pay this tax year raising your taxable income this year further. E.g. Virgin is an amazing rate but interest is paid quarterly so you still pay some tax on what you still get in returns.

Maybe check if there are any accounts where you can change the interest payment date (e.g. Atom bank allow you to switch from monthly to annual if I remember correctly) or find accounts that pay a decent rate but interest payments are annually so fall into next tax year.

Work out when you are better off outside vs. an ISA account

ISA vs normal savings

1.25 if you're a basic-rate taxpayer

1.66 if you're higher-rate taxpayer

1.82 if you're a top-rate taxpayer

As a basic rate tax payer and taking the T212 cash ISA rate of 5.17% means anything outside an ISA with a rate above 6.46% yields a higher net return vs cash in that ISA. I would ditch (stop funding or withdraw funds) any regular savers below 6.46% and stick that into the ISA now. Don't forget, the interest remains tax free and grows your tax free cash pot.

Regarding Natwest/RBS it does take time to fill them up if you just do regular monthly payments, however, they can be filled up in 25 days if you put the effort in and accept the risk. (Double round ups enabled, 99 transactions each day = 99 x £1.98 = £196.02 per day). So even if you take a much less aggressive approach, you can boost them significantly in a rather short time. 

I would therefore empty the Skipton 3k and Natwest/RBS 5k each and stick the 13k into the T212 ISA. It's a miracle that the rate of 5.17% is still around and you get the interest added daily too. 

Make sure you always have the balance of your stoozing pot ready to repay when the terms are up or should you be asked to repay in full early. 

We could overcomplicate things and with tax only being collected in 2026-27 and, let's say 2% annual inflation, by the time you actually pay the tax it has reduced in real terms but you can earn with that tax debt further gains now while interest rates are paying above inflation return. 

If you still want to overpay your mortgage, assuming you pay monthly, maybe see if you can reduce the principal by bi-weekly payments (rather common in US) and make the additional £125 on top. You would make 12 monthly payments when you pay monthly vs 13 payments if you pay bi-weekly (26 payments / 4 weeks = 13 monthly payments). Maybe wait until the after tax interest returns go below your 4.4% rate as you can currently achieve higher yields in savings. Example from Chase for the US

Many variables to play with and an easier approach or you factor inflation and other elements in, which makes it rather complicated. Anyhow, I would fund the ISA now so you're not in a rush to "find" the 20k to bank this years allowance when we get to March. 

Jazzking

Thanks everyone for the replies, especially @pecunianonolet for the detailed response and info on the quick way to refil the NW/RBS savers if needed, though 99 transactions a day for 25 days is very intensive!

Good to know know the timescales on paying the tax as well @Dazed_and_C0nfused , 26/27 seems a while away...!

All my current RS pay over 7% and, other than Gateshouse, are maturing after April.  The only one I might consider re-opening is the Club Lloyds at 6.25% as it is a decent fixed rate and deposit limit and would obviously mature in 25/26 as well so would shelter me from any further rate cuts..

I think I'll bike the bullet and move the £13k into the ISA, as you say it's a great rate and I can then focus on managing the 25/26 interest without worrying if I'm going to be in a similar situation this time next year and will reduce what tax I need to pay on interest for the rest of this year.

Thanks!

jimexbox

If you have a partner and you trust them, you can always utilise their PSA. My better half works part-time, so I use their PSA and starting savings rate. Obviously it's legally their money.

Jazzking

jimexbox said:

If you have a partner and you trust them, you can always utilise their PSA. My better half works part-time, so I use their PSA and starting savings rate. Obviously it's legally their money.

Good point, and I do, and I do - however I've tried many a time to convert her to the MSE ways of maximising interest, bank account switching etc and it's all a bit of a hassle for her - she's not as interested in it as me and would just rather have her money in the same bank account she's had for the last 20 years... 

Anyway - I've just estimated my interest for next year and it's a smidge under £1000, but that's with the full NW/RBS allocations (i.e not moving them into the ISA this year) - assuming they stay at the same rate.

Without these (i.e. with them in the ISA) I'd be at £425 of my PSA and paying no tax, so therefore I would probably be better keeping them in and just coping with the extra tax for 24/25 for the final 3 months of 24/25, rather than giving up the £10k at the higher rate for next year?