How can I make myself tax efficient

JV_21

Hi there

I was hoping to get some thoughts on how best to maximise my finances in a tax efficient way so I'm not paying as much tax on interest. I already max out my ISA allowance and a total 16% goes into my pension. No particular financial goals really.

Based on the figures below, are there other things I should consider? I understand GIAs could be an option.

I'm 45 male, single, no children.

Mortgage paid off.

Salary: £46k.

Cash savings: £273k. I realise it's too high.

Taxable bank interest: around £12k.

ISAs (cash and S&S): £154k.

Pension value: £111k.

Thank you

Dazed_and_C0nfused

JV_21 said:

Hi there

I was hoping to get some thoughts on how best to maximise my finances in a tax efficient way so I'm not paying as much tax on interest. I already max out my ISA allowance and a total 16% goes into my pension. No particular financial goals really.

Based on the figures below, are there other things I should consider? I understand GIAs could be an option.

I'm 45 male, single, no children.

Mortgage paid off.

Salary: £46k.

Cash savings: £273k. I realise it's too high.

Taxable bank interest: around £12k.

ISAs (cash and S&S): £154k.

Pension value: £111k.

Thank you

Your pension value looks very low given your age and earnings. 

Is it a normal DC pension "pot"?

Additional (relief at source) contributions would increase your basic rate band so more of the interest gets taxed at 20% instead of 40%.

tigerspill

At 45, I was starting to massively ramp up mt pension contributions.  I was paying tax at 40% and could contribute through Salary Sacrifice.
When I has my retirement plan time line, I started contributing every penny I could and lived off savings for a number of years.

When do you hope to retire?  With those savings, you could contribute a LOT to your pension.  But not really enough info to say.

InvesterJones

Is it more important to you to pay less tax, even if the take home figure afterwards would be lower? (for some this is the case for administration reasons).

Work out your goals and if on track for pension - if not, that's a clear win - you can get a SIPP if not able to contribute more via salary. Working out how much cash you actually need, and when is important too - if you can afford to put money to work for longer then investing it via a GIA is an option - there are currently capital gains and dividend allowances before you have to pay any tax on gains/dividends. If you need some fixed income in your strategy then gilts are free from capital gains tax.

El_Torro

Upping your pension contributions is probably the best course of action, as mentioned. 

Another thing you can do is put £50k (or less if you want) into Premium Bonds. Anything you win is tax free. However paying some tax on a good interest rate can be better than paying no tax on a poor return. 

ColdIron

You could use Premium Bonds but they're not very good, especially for the long term

The obvious route would be pension contributions, you have enough cash for this. As a 40% taxpayer it would help a great deal and could even take you out of higher rate tax entirely and restore your £1,000 personal saving allowance. It's a no brainer

JV_21

Thanks all. It looks like the pension is the way to go.

The value quoted is the total of several old pots and my workplace pension which is salary sacrifice. I'm hoping to retire at around 68.

Would you suggest simply upping my contribtions? And to what level? 

Dazed_and_C0nfused

JV_21 said:

Thanks all. It looks like the pension is the way to go.

The value quoted is the total of several old pots and my workplace pension which is salary sacrifice. I'm hoping to retire at around 68.

Would you suggest simply upping my contribtions? And to what level? 

You aren't making any contributions.

From a financial perspective the best and simplest option is to agree a further reduction in salary in return for additional employer (salary sacrifice) contributions.

That avoids you having to deal with HMRC and also means you don't pay tax or NI on the amount sacrificed.

How much could you afford to sacrifice?

What is your current taxable pay?

kempiejon

JV_21 said:

Thanks all. It looks like the pension is the way to go.

The value quoted is the total of several old pots and my workplace pension which is salary sacrifice. I'm hoping to retire at around 68.

Would you suggest simply upping my contribtions? And to what level? 

To what level, well right up to the maximum would be my thought to reduce tax but I'm inclined to be adventurous. I think I could see a way of taking you out of income tax totally. There's a bit of jiggling of allowances but salary sacrifice to min wage and SIPP the balance then spending unsheltered cash looks far more tax efficient.
Premium bonds, ISAs, a low yield maturing gilt ladder, maximise capital gains and dividend allowances are all good pointers.

But that looks like a massive change to your current structure and would be a big rethink so probably worth a full plan. 

JV_21

Dazed_and_C0nfused said:

You aren't making any contributions.

From a financial perspective the best and simplest option is to agree a further reduction in salary in return for additional employer (salary sacrifice) contributions.

That avoids you having to deal with HMRC and also means you don't pay tax or NI on the amount sacrificed.

How much could you afford to sacrifice?

What is your current taxable pay?

Taxable pay after salary sacrifice (6%) is just over £43k. I'd be interested to get out of the higher tax rate and push my pension value up. 

Dazed_and_C0nfused

JV_21 said:

Dazed_and_C0nfused said:

You aren't making any contributions.

From a financial perspective the best and simplest option is to agree a further reduction in salary in return for additional employer (salary sacrifice) contributions.

That avoids you having to deal with HMRC and also means you don't pay tax or NI on the amount sacrificed.

How much could you afford to sacrifice?

What is your current taxable pay?

Taxable pay after salary sacrifice (6%) is just over £43k. I'd be interested to get out of the higher tax rate and push my pension value up. 

Unless you're Scottish resident you will be about £5k over the basic rate threshold (earnings and taxable interest).

So that would be a good starting point to think about.