House sale proceeds in savings 1-2yrs - tax and best options to avoid it

gkaf83

Advice please. Going through a divorce and just sold my house. Don't know where I want to live so going to move into rented for 1-2 years before I buy a house. On £130k sale proceeds, what level of tax can I expect to pay on it per year and what the are the options to minimise tax. Note, I am a higher tax bracket earner (40%). My initial thinking is:

• £10k in Shares/Investment ISA - paying £100 per month in (£1200k per year)
• Pay remaining tax free allowance (£18,800k) into a ISA
• £120k split across 2-3 savings accounts - it is this proportion of funds that I want to understand how much tax I am likely to pay in the next 1-2years and what are my best options to keep this low. Do i pay tax on the full amount in my account or is it just on the interest I earn, in which case I am ok with that because I wont be losing money just earning less interest to account for the tax. 

Thanks in advance

SiliconChip

The good news is that it's only the interest that you earn that will be taxed, so for your third point you just need to use the best paying savings accounts, probably split across 2 providers to ensure you remain under the FSCS £85K limit. The bad news is that it'll be at your marginal rate, so 40% (I think you'll get £500 at 0% through your Personal Savings Allowance).

Yes, put £20K in ISAs, I think your first point is a bit muddled but I believe your intenion is to invest £100 per month for a total of £1200 in a year (although that's only possible if you start in April, you might want to just divide the £1200 by the number of months remaining in the tax year and invest that amount each month). 

I'm doing something similar with my ISAs this year, but with a different split, in April I put £14K in a cash ISA and moved £6K into a Trading 212 S&S ISA, the cash element currently earns 4.35% and each month I use £500 to buy shares, so that by the end of the tax year the full £6K (plus the interest earned on the cash) will be invested in shares.

Sarahspangles

gkaf83 said:

On £130k sale proceeds, what level of tax can I expect to pay on it per year and what the are the options to minimise tax. Note, I am a higher tax bracket earner (40%).

ISAs are a no-brainer.

For the rest:

Assuming you are saving this money across a couple of tax years you may want to ensure you receive enough interest in Year 1 to make the most of each year’s £500 personal savings allowance. There are easy access accounts that pay interest monthly (eg Coventry, Newcastle pay 4.41% which equates to 4.5% in annual interest). Or you could close an account in March, to trigger payment of the interest this tax year.

Premium Bonds make some sense if you’re a higher rate tax payer. You can have £50,000 in bonds and the prizes are tax free. So if you’re averagely lucky the fact that the average bond holder could get better interest elsewhere is trumped by the fact you’re not taxed on the ‘interest’ on PBs i.e. a different rate applies to you personally.

Albermarle

As above , buy £50K of Premium Bonds. Good choice for a higher rate taxpayer. You can access the money in three working days when it is needed.