ISA and savings help please

penguin10

Hi - I will soon get a lump sum from my public sector pension, partial retirement  - around £75,000.
I have never had such an amount of money in my life so could someone please guide me what to do with it please?
I will use around £16k for house updates so that leaves £60,000.
I am quite risk averse and would like to always have pretty quick access to my money.
I plan to open an easy access ISA  (A) now and put £20k into it straight away.  Then in April 26 open another one (B) and put another £20k and the same for April 27 (C).
I will consider if its worth changing from A, B or C as time goes on  being mindful to follow guidance about withdrawals etc.
For now though, should I just put the £40,000 into a savings account?  I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings . (My pension plus earnings will be approx. £40k per annum).
Am I going along the right path?
Thanks in advance

eskbanker

penguin10 said:

For now though, should I just put the £40,000 into a savings account?  I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings . (My pension plus earnings will be approx. £40k per annum).
Am I going along the right path?

Probably - your personal savings allowance is £1K rather than £2K, but the usual recommendation is to maximise net return rather than to try to avoid tax as such, as they're not always the same thing, so consider taxable savings accounts rather than ISAs anyway, not just as a temporary stopgap.

The Flowchart - UKPersonalFinance Wiki offers a structured process to assist you.

penguin10

Great thank you - I will study the flow chart

NorthYorkie

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

Albermarle

NorthYorkie said:

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

You do not have to declare interest to HMRC, unless you do a self assessment tax return anyway and/or the interest is above £10K .
For most people the banks reporting the interest is enough for HMRC to calculate any tax due.

wmb194

NorthYorkie said:

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

To be clear, banks and BS’ report interest earned to HMRC and then HMRC will usually adjust your tax code to collect any tax due.

If things work as they should the OP shouldn’t need to contact HMRC at all.

Albermarle

 am quite risk averse and would like to always have pretty quick access to my money.

On the first point there is actually a risk in keeping all the money as cash savings, if you want it to last for many years. Inflation can erode the real value.
Investments will nearly always give a better return over the long term.

On the second point do you really need quick access to all that money ?