Maximising Savings

Pucky89

Evening All,

I am in the process of receiving some inheritance I am just wondering if I’m on the right lines with what I am doing with it.

With what I have got so far I have maxed out ISA for this year and also premium bonds.

Mindful of having over 85k in the account I have split into two others which had pretty good rates (Monument and Coventry)

I am likely to receive another 100k once the other accounts have been settled. 

With the remaining other adding to my ISA should I look to do similar to the above or is there something different?

I am looking to move house in the near future but it’s not something I have to do right away it’s a case of finding the right one for the family ( wife and a little 1)

Currently have 30k left on current mortgage, pension I have matched to my employers contribution.

I will leave some for emergencies, don’t really know too much around shares other than needing to be in it for the long term, but if we move I am likely to need around 200k of what I have received. With accounts I have mentioned above I can access them without being penalised.

Thanks for reading and for any advice! 

Newbie_John

Well, much more info needed.
Age, tax rate, when exactly you'd be up to moving - 1-5 years? When does mortgage fixed rate end?
Even age of your little one for Premium Bond for them.. 

Pucky89

thanks for the reply!

Yes sorry, I’m 43, basic tax rate. Re moving within 1 - 2 years. Mortgage rate finishes new year in march.
Little one is 7. 

friolento

What’s your wife’s pension provision? Does she have an ISA?

Will the plans for your child’s education involve costs (Uni etc)? 

Newbie_John

Up to you to decide really as it varies on a lot of tiny details but options are:
a) max out what's not maxed out - partners ISA, 2025 ISA x2, premium bond for child 
b) just keep it in savings and accept the 20% tax - £100k at 4% makes £4000 and after 20% tax (assumed you aleardy reached £1000 interest elsewhere) you still £3200 up. Make sure this doesn't take you to higher tax bracket if let's say you earn £47k. Also partner's limit.
c) pay off all debts like mortgage, student loans etc
d) some would consider putting more money into pension - look at it this way - you get paid £1000 but if you put that to pension you would instantly get £1200 (no tax) that by the time you 57-59 will grow to let's say £2000 and it could be potentially withdrawn tax free
e) spend it - house, schools, unis

any other investments that could bring more than 5%/year will probably require longer time so in my opinion not worth as you say you will need the money back in 1-2 years

Albermarle

 pension I have matched to my employers contribution.

Unless your employers contribution is on the higher side, then normally you have to add more yourself to build up a decent pot.
Just adding say 10% between you and the employer is normally insufficient, so if that is the case you should probably look at adding more to your pension, maybe as a lump sum.

Pucky89

Newbie_John said:

Up to you to decide really as it varies on a lot of tiny details but options are:
a) max out what's not maxed out - partners ISA, 2025 ISA x2, premium bond for child 
b) just keep it in savings and accept the 20% tax - £100k at 4% makes £4000 and after 20% tax (assumed you aleardy reached £1000 interest elsewhere) you still £3200 up. Make sure this doesn't take you to higher tax bracket if let's say you earn £47k. Also partner's limit.
c) pay off all debts like mortgage, student loans etc
d) some would consider putting more money into pension - look at it this way - you get paid £1000 but if you put that to pension you would instantly get £1200 (no tax) that by the time you 57-59 will grow to let's say £2000 and it could be potentially withdrawn tax free
e) spend it - house, schools, unis

any other investments that could bring more than 5%/year will probably require longer time so in my opinion not worth as you say you will need the money back in 1-2 years

Thanks for this, I have maxed on ISAs and have PB for the little one. 

I can’t get my head around the tax situation I’m pretty sure I will find myself in. Estimating interest of around approx 8k once respective accounts mature next march. This will take me into higher tax bracket (by about 3k) what’s the implications of this? 

Pucky89

Albermarle said:

 pension I have matched to my employers contribution.

Unless your employers contribution is on the higher side, then normally you have to add more yourself to build up a decent pot.
Just adding say 10% between you and the employer is normally insufficient, so if that is the case you should probably look at adding more to your pension, maybe as a lump sum.

Matching isn’t great so currently I pay 18% of my salary whilst they contribute 7.

eskbanker

Pucky89 said:

I can’t get my head around the tax situation I’m pretty sure I will find myself in. Estimating interest of around approx 8k once respective accounts mature next march. This will take me into higher tax bracket (by about 3k) what’s the implications of this? 

The implication is that you'd pay tax at 40% on that £3K, i.e. £1.2K, while the other £5K of savings will incur circa £900 tax (£500 @ 0%, £4.5K @ 20%).

Albermarle

Pucky89 said:

Albermarle said:

 pension I have matched to my employers contribution.

Unless your employers contribution is on the higher side, then normally you have to add more yourself to build up a decent pot.
Just adding say 10% between you and the employer is normally insufficient, so if that is the case you should probably look at adding more to your pension, maybe as a lump sum.

Matching isn’t great so currently I pay 18% of my salary whilst they contribute 7.

Actually that is not too bad. Employers are only obliged to pay a minimum of 3%, and many do just that.

WindfallWendy

I was in a similar position and have done this:

TAX FREE POTS (interest here doesn't count as taxable income)
Maxed out my ISA and my husband's ISA
Maxed out our premium bonds allowances
Shoved a big chunk into my investment pension via my employer 

Split the rest between me and my husband: we each set up new interest paying current account (to benefit from both of us being able to earn £1000 untaxed). We went with Kroo.
Then I set up a bunch of Regular Saver accounts, offering between 4.5%-8%, and now shovelling £2-3k/month into those (which will of course increase the likelihood of having to pay tax on interest, but otherwise the money is sitting around doing nothing so might as well get the most out of the systems while I can). Many of these have needed additional current accounts to be set up in order to be eligible, so it's a bit of admin effort but I didn't want the cash to sit around earning minimal interest when it was there to work for me.

I also reduced my working hours to ensure my taxable salary stayed below the 40% threshold once any interest earnings got involved, though this was also influenced by the fact I had rental income from a house I inherited for a short time, so going up a tax bracket was a very real risk.

It's only the current account and regular saver interest that is going to need to be declared/HMRC will spot and tax you on and if you've put £140k into tax free pots, then your remaining money isn't going to generate £8k. Plus if you split it between two of you, you have the £1000 each of tax free interest which is allowed.

Caveating all this since it's specific to my own situation. Different pensions and income levels and thresholds all vary of course and probably kids complicates things further with tax credits? Anyway, that was my plan of action, and with the extra pension payments I made late in the financial year (which meant I didn't get the full tax relief from my employer at the time) I have ended up with refunds due from HMRC, which has been rather pleasing.