Avoiding paying tax on a gift.

Gimmeaminute

My MIL has just gifted myself and my wife the best part of £200K. Apart from opening an isa now and after 06/04 and buying premium bonds of £50K is there anything else we can do to protect the money from tax?

jimjames

There is no tax on gifts. There may be IHT to pay if the donor's estate is liable for IHT and they don't live more than 7 years from the date of gift.

Gimmeaminute

Sorry, i should have been more specific. How can we best invest the money so that no tax is paid on the interest? IHT is not an issue.

eskbanker

The question is really 'what to do with a lump sum to minimise tax' rather than relating to its gift status as such, although as ever, it ought to be about how to maximise net return rather than minimise tax, so premium bond returns are indeed tax-free but may not be optimal compared with other options, such as investing inside or outside pensions - granted, OP implies that saving the money is preferred but we don't know the rest of their circumstances yet....

Neil49

Two lots of premium bonds (at £50k each) plus 2 isas now and two next year gets you up to £180k.

How much is left? 

jimjames

As above plus pensions perhaps instead of the PBs depending on ages and requirements for the money

Gimmeaminute

My wife doesn't want to tie the money up in pensions as she is only 45 and wants to be able to access the cash on a whim if she fancies a holiday or a used car or whatever. We have the rest of our time planned out already, we both have 2 x DB pensions and we paid off our mortgage about 12 years ago. We're just trying to maximise returns from the £200K and give our useless government as little as we possibly can.

eskbanker

Gimmeaminute said:

My wife doesn't want to tie the money up in pensions as she is only 45 and wants to be able to access the cash on a whim if she fancies a holiday or a used car or whatever. We have the rest of our time planned out already, we both have 2 x DB pensions and we paid off our mortgage about 12 years ago. We're just trying to maximise returns from the £200K and give our useless government as little as we possibly can.

Entirely understandable to want to have easy access to a chunk of money for luxuries, etc, but presumably there's no need to have it all readily available like that?

Gimmeaminute

eskbanker said:

Gimmeaminute said:

My wife doesn't want to tie the money up in pensions as she is only 45 and wants to be able to access the cash on a whim if she fancies a holiday or a used car or whatever. We have the rest of our time planned out already, we both have 2 x DB pensions and we paid off our mortgage about 12 years ago. We're just trying to maximise returns from the £200K and give our useless government as little as we possibly can.

Entirely understandable to want to have easy access to a chunk of money for luxuries, etc, but presumably there's no need to have it all readily available like that?

Spot on. We're relitively frugal and have the rest of our lives planned out, so just need a bit of 'on a whim' cash, the rest we would like to mostly give to our kids for uni expenses, car, house deposit etc. Ideally don't want this wasteful government to get anything.

dunstonh

My wife doesn't want to tie the money up in pensions as she is only 45 and wants to be able to access the cash on a whim if she fancies a holiday or a used car or whatever. 

Having some money for the short term and rainy day is perfectly sensible.  However, does she really need £200k for a whim?

In terms of tax efficiency, pension is the most efficient wrapper for most people (it beats the ISA wrapper).

400ixl

To balance out long term vs shot term maybe:
Stock & shares ISA each with £20k each in FY24 and £20k in FY25 (April) will give you that investment return but not locked in. Thats £80k done.

Then £50k each in premium bonds (you can decide if you want to more money to ISA's each year as that option opens) that £180k done.

£20k in a joint savings account and even cycling into a easy save account. Should keep you under the tax threshold for interest.

You may also want to look at the interest rate and put as much into the savings side before hitting the interest threshold and less in premium bonds.