Advice please on saving £60,000 mortgage deposit over next 12-15 months (for max interest /w no tax)

Jord17

Hello,

From next month me and my partner are looking at saving roughly £4000-£5000 per month, the intention is to get a £60,000 mortgage deposit together within 12-15 months. 

I have looked into the best way to save money while gaining maximum interest without paying tax.

I believe the best way is to set up a Cash ISA in both of our names (1 account each for £20,000 for 12 months) and then we're thinking of putting the other £20,000 into a savings account. Would this be the best option to gain maximum interest from the savings without paying tax?

Would really appreciate some advice, thank you so much. 

gravel_2

Sounds right. It would take you 8 months to fill up both ISAs @ £5k per month.

Then dump everything into a savings account until the next tax year hits, move that all to ISA as well. 

Depending on your tax bracket you are probably unlikely to hit the threshold for paying tax on interest for the ~4 months you would be saving outside of an ISA. You can also be flexible with who holds the cash if this will help reduce your risk of tax.

At the end of the day I would rather earn the interest and pay some tax than focus on avoiding the tax.

Jord17

gravel_2 said:

Sounds right. It would take you 8 months to fill up both ISAs @ £5k per month.

Then dump everything into a savings account until the next tax year hits, move that all to ISA as well. 

Depending on your tax bracket you are probably unlikely to hit the threshold for paying tax on interest for the ~4 months you would be saving outside of an ISA. You can also be flexible with who holds the cash if this will help reduce your risk of tax.

At the end of the day I would rather earn the interest and pay some tax than focus on avoiding the tax.

Thanks for the info much appreciated

I'm assuming when it comes to paying the deposit for the house, we can just withdraw it all into one account and won't need to worry about paying interest at that point on the overall amount? 

kempiejon

The slightly more exotic way of keeping a low tax bill for UK based saver is short dated, low-coupon gilts, of particular interest for those who have filled their ISA and Premium Bonds. Ones own tax situation will determine the best rate net of tax and that is probably better than finding no tax savings.

Exodi

Jord17 said:

gravel_2 said:

Sounds right. It would take you 8 months to fill up both ISAs @ £5k per month.

Then dump everything into a savings account until the next tax year hits, move that all to ISA as well. 

Depending on your tax bracket you are probably unlikely to hit the threshold for paying tax on interest for the ~4 months you would be saving outside of an ISA. You can also be flexible with who holds the cash if this will help reduce your risk of tax.

At the end of the day I would rather earn the interest and pay some tax than focus on avoiding the tax.

Thanks for the info much appreciated

I'm assuming when it comes to paying the deposit for the house, we can just withdraw it all into one account and won't need to worry about paying interest at that point on the overall amount? 

@gravel_2 is right, and to help illustrate this, I've added it to a projection below with figures (assuming 4.5% interest and £4500 payment split between you both).

EAS is Easy Access Savings - but effectively a taxable account. As you can see, you only earn around £100 of taxable interest within that financial year.

As to your later question, you can withdraw it all to one account, no problem, whether you pay interest depends on your personal circumstances - on £60k you'd be earning about £7.40 of interest a day. If you are a basic rate tax payer you can earn £1000 of interest within a year before you're liable to pay tax on interest, for a higher rate tax payer the threshold drops to £500 and for an additional tax rate payer the allowance drops to zero. Whether you will pay tax depends in your tax bracket, and also how much interest you've generated from other sources across the tax year.

That said if the money goes into a joint account (though it might be hard to find a joint savings account paying 4.5%!), interest for the purposes of the allowance should be split equally between account holders.

Yorkie1

On those figures, if £2250 per person per month goes into the ISA, you'd be able to put £2K into the ISA in month 9, so only £250 into the EAS that month (the interest in an ISA doesn't count towards the annual limit).

kimwp

You'll pay tax, but ended up with more overall if you feed lots of regular savers at higher rates than the current highest ISA rates (taking into account the tax). Also don't forget your savings allowance.