Tax/savings advice

Lilashes85

Hi, 

So, I was hit with tax on my savings for the first time this year for 24/25 and have had my taxe code reduced

I've been saving for a house and stupidly took my money out of ISAs when the interest was low..which was great, but getting it all back into the tax-free bubble will take a long time and has opened me up to tax on my savings in the meantime. 

I've been told about paying into a pension to offset the excess interest against the tax. 

I'm just trying to work out what is best. I appreciate its different for everyone, but was hoping for some opinions.

•Continue to pay tax on my savings over £1000 (excluding ISA interest) 

•Offset into a pension, but then I don't have that extra money to go towards my (one day) house purchase 

•Put my money into premium bonds and only earn £1000 (excluding ISA interest) also limits my house savings 

Any thoughts? 

TIA

eskbanker

I'd simply reiterate the usual guidance on here, i.e. concentrate on maximising net return rather than minimising tax liability, so evaluate how much of your interest would actually be subject to taxation after allowances, and work out the net return accordingly.

Pensions are tax-efficient for money that you won't need until at least 55, but if that's not appropriate for your plans then there's no point in putting any money into them.

Albermarle

Premium bonds do not pay interest, but monthly prizes instead. Statistically an average return can be calculated, which is currently around 3.2 %. However you are more likely to get this average return if you hold the max number of PBs - £50,000 and you keep them for a longish time.
If you have less and for a shorter time you are more likely to get less or more than 3.2% , depending on your luck.
The prizes are tax free and there is a very small chance of winning a bigger prize. In fact you can win a Million but the chance of winning that is infinitesimally small. 

Vitor

If the OP is confident they will buy a qualifying first home within a few years, and that home will cost £450k or less, a LISA is practically unbeatable so long as the onerous rules are fully understood.

After that, if the aim is liquidity, capital stability and tax-free treatment, then Premium Bonds (NS&I) work when someone wants absolute capital security backed by the government but can tolerate an unpredictable pattern of returns, including £0 return.

saajan_12

Lilashes85 said:

I'm just trying to work out what is best. I appreciate its different for everyone, but was hoping for some opinions.

Well it depends on circumstances so we can help better with some info on yours.
* How much money are we talking about in savings already?
* How much are you accumulating each year from income?
* What tax band are you? 

Grumpy_chap

Lilashes85 said:

Hi, 

So, I was hit with tax on my savings for the first time this year for 24/25 and have had my taxe code reduced

I've been saving for a house and stupidly took my money out of ISAs when the interest was low..which was great, but getting it all back into the tax-free bubble will take a long time and has opened me up to tax on my savings in the meantime. 

I've been told about paying into a pension to offset the excess interest against the tax. 

I'm just trying to work out what is best. I appreciate its different for everyone, but was hoping for some opinions.

•Continue to pay tax on my savings over £1000 (excluding ISA interest) 

•Offset into a pension, but then I don't have that extra money to go towards my (one day) house purchase 

•Put my money into premium bonds and only earn £1000 (excluding ISA interest) also limits my house savings 

Any thoughts? 

TIA

Prioritise your needs, aspirations and life goals (short and long term) over tax efficiency.

If you drew the funds for a house purchase, then putting the funds into a pension (assuming you have available allowances) is not supportive of your life goals, certainly not short term.

You can put some of the savings back into an ISA, assuming you have available allowance, and can do the same again next tax year.

Why does the money in premium bonds limit your house savings?
Likewise, don't limit your savings purely on the basis of a small amount of tax that may be due if the interest earned exceeds the savings allowance.

sheramber

Grumpy_chap said:

Lilashes85 said:

Hi, 

So, I was hit with tax on my savings for the first time this year for 24/25 and have had my taxe code reduced

I've been saving for a house and stupidly took my money out of ISAs when the interest was low..which was great, but getting it all back into the tax-free bubble will take a long time and has opened me up to tax on my savings in the meantime. 

I've been told about paying into a pension to offset the excess interest against the tax. 

I'm just trying to work out what is best. I appreciate its different for everyone, but was hoping for some opinions.

•Continue to pay tax on my savings over £1000 (excluding ISA interest) 

•Offset into a pension, but then I don't have that extra money to go towards my (one day) house purchase 

•Put my money into premium bonds and only earn £1000 (excluding ISA interest) also limits my house savings 

Any thoughts? 

TIA

Prioritise your needs, aspirations and life goals (short and long term) over tax efficiency.

If you drew the funds for a house purchase, then putting the funds into a pension (assuming you have available allowances) is not supportive of your life goals, certainly not short term.

You can put some of the savings back into an ISA, assuming you have available allowance, and can do the same again next tax year.

Why does the money in premium bonds limit your house savings?
Likewise, don't limit your savings purely on the basis of a small amount of tax that may be due if the interest earned exceeds the savings allowance.

Money in Premium Bonds does not gain interest so does not add anything to savings for a house. Unless he wins some decent prize money. 

Notepad_Phil

sheramber said:

Grumpy_chap said:

Lilashes85 said:

Hi, 

So, I was hit with tax on my savings for the first time this year for 24/25 and have had my taxe code reduced

I've been saving for a house and stupidly took my money out of ISAs when the interest was low..which was great, but getting it all back into the tax-free bubble will take a long time and has opened me up to tax on my savings in the meantime. 

I've been told about paying into a pension to offset the excess interest against the tax. 

I'm just trying to work out what is best. I appreciate its different for everyone, but was hoping for some opinions.

•Continue to pay tax on my savings over £1000 (excluding ISA interest) 

•Offset into a pension, but then I don't have that extra money to go towards my (one day) house purchase 

•Put my money into premium bonds and only earn £1000 (excluding ISA interest) also limits my house savings 

Any thoughts? 

TIA

Prioritise your needs, aspirations and life goals (short and long term) over tax efficiency.

If you drew the funds for a house purchase, then putting the funds into a pension (assuming you have available allowances) is not supportive of your life goals, certainly not short term.

You can put some of the savings back into an ISA, assuming you have available allowance, and can do the same again next tax year.

Why does the money in premium bonds limit your house savings?
Likewise, don't limit your savings purely on the basis of a small amount of tax that may be due if the interest earned exceeds the savings allowance.

Money in Premium Bonds does not gain interest so does not add anything to savings for a house. Unless he wins some decent prize money. 

It's true that prize money is not guaranteed and if you only have a small amount in premium bonds then it can be many years before anything is won. But they likely have a decent amount of money if it's going to take a long time to get it back into ISAs, and the closer they have to £50k in there the more likely they are to receive close to the annual prize rate (minus about 0.4% to account for the remote chances of winning the bigger prizes).

However having said all that, the current prize rate is not particularly brilliant (but much better than most high street accounts), so if the poster is happy to search for the better paying accounts and keep an eye on rate changes and move around then a savings account is the way I personally would go in this situation.