Personal and savings tax allowance questions

kermchem

OP seems to have savings that produce a taxable income of £40k plus a state pension. Husband has similar income but no state pension. They retain the services of an accountant. Neither seems to have a personal pension. With no real evidence they have probably sold a business, which was always planned to be their “pension”. 

Get the accountant to do some work or recommend a financial adviser. 

masonic

DRS1 said:

ILGs are a different kettle of fish.  I don't find it at all easy to judge the sort of return you would get.  But there are some handy tools for building a gilt ladder of ILGs if that is of any interest, including this one
Gilt Ladder Builder · Streamlit
Just to say that may get you to a page for conventional gilts but there is a column to the left where you can change that to ILGs (and change other things to taste).

Yes, LateGenXer's tool is very useful indeed. On the subject of understanding ILGs, it is straightforward if you think in terms of real return. Then you can use the real YTM to ascertain that you'd achieve RPI/CPIH + 1-2% assuming you don't buy from the very short end of the yield curve. Though future inflation is an unknown, it is very nice to remove it from the equation (to some extent), because while nominal returns are simple to understand, you can't know what return will be "enough" to preserve the spending power of your capital. They can also be used to lock in a future inflation linked annuity (which is the main purpose they serve for me).

HeadScratching

DRS1 said:

masonic said:

I would say on the low coupon gilt front, it is marginal for a basic rate taxpayer at current prices, but something to keep an eye on for the future. At times these can offer better overall value to a taxpayer than the best savings accounts for large sums.

Index linked gilts might still be worth some thought, as these are mostly low coupon and could address the inflation risk of remaining in cash, but add another layer of complexity due to the inflation linking. Again, probably not an immediate need to get to grips with as in the short term it is likely that after tax savings rates will beat inflation.

Yes I suppose I was looking at it from the perspective of someone brushing up against the higher rate threshold.  If you get a straight 4% income from a savings account that might push you over.  But if you buy a gilt and get say 1.25% income and say 2.8% capital gain (where the capital gain is tax free) then you could stay a basic rate taxpayer and get a better overall return.  You do need to bear in mind that the gain is only at maturity (or maybe if you sell).

Of course those are made up figures and finding such gilts at reasonable prices may not be easy given that private investors (especially higher rate taxpayers) have been buying these things for a few years now

ILGs are a different kettle of fish.  I don't find it at all easy to judge the sort of return you would get.  But there are some handy tools for building a gilt ladder of ILGs if that is of any interest, including this one
Gilt Ladder Builder · Streamlit
Just to say that may get you to a page for conventional gilts but there is a column to the left where you can change that to ILGs (and change other things to taste).

OP do you really not have a private pension as well as the state one?

Yes I do have a small private pension from a previous workplace (in the 1980s!) that I had forgotten about until I was contacted by someone 10 years ago saying something had been mis-sold to me - I received compensation and haven't touched it or added to it since, so it's just accruing. Hubby has a private pension and annuities that he still pays into and can't be touched for years. Building up then selling our business has proved us with a tidy lump sum hence being able to largely live off the savings interest going forward. I have a small trading account with Interactive Investor, and a change in their fee policy this year now covers a S&S ISA and a SIPP as well, so will be taking a closer look at those.

Back to the gilts - the most enticingly priced ones are of course longer term, when I may not be around to benefit from the tax free element. What happens to the gilts - can they trundle along until say 2056 and my descendants can then benefit? Or will they have to be sold early when I shuffle off - and would CGT be payable on them then?

I am going to be speaking with a financial advisor later this year re investments, tax and inheritance issues but I would like to go armed with sensible questions and reasonable understanding.

HeadScratching

fuzzzzy said:

You could pay £2880 into a SIPP every year until 75, to extend your basic rate band.

Sorry for my ignorance but why specifically £2880?

BreakingGlass

HeadScratching said:

fuzzzzy said:

You could pay £2880 into a SIPP every year until 75, to extend your basic rate band.

Sorry for my ignorance but why specifically £2880?

Because if you 'gross up' £2880 (i.e add 25%) then it reaches the £3600 maximum that a non-earner can contribute.

(Effectively, £2880 is 80% of £3600, so it's like getting your 20% basic rate tax back)

bioboybill

HeadScratching said:

fuzzzzy said:

You could pay £2880 into a SIPP every year until 75, to extend your basic rate band.

Sorry for my ignorance but why specifically £2880?

Because if you have no earned income the maximum you can put into a pension each year is £3600 including the 25% top up from HMRC.

fuzzzzy

HeadScratching said:

DRS1 said:

masonic said:

I would say on the low coupon gilt front, it is marginal for a basic rate taxpayer at current prices, but something to keep an eye on for the future. At times these can offer better overall value to a taxpayer than the best savings accounts for large sums.

Index linked gilts might still be worth some thought, as these are mostly low coupon and could address the inflation risk of remaining in cash, but add another layer of complexity due to the inflation linking. Again, probably not an immediate need to get to grips with as in the short term it is likely that after tax savings rates will beat inflation.

Yes I suppose I was looking at it from the perspective of someone brushing up against the higher rate threshold.  If you get a straight 4% income from a savings account that might push you over.  But if you buy a gilt and get say 1.25% income and say 2.8% capital gain (where the capital gain is tax free) then you could stay a basic rate taxpayer and get a better overall return.  You do need to bear in mind that the gain is only at maturity (or maybe if you sell).

Of course those are made up figures and finding such gilts at reasonable prices may not be easy given that private investors (especially higher rate taxpayers) have been buying these things for a few years now

ILGs are a different kettle of fish.  I don't find it at all easy to judge the sort of return you would get.  But there are some handy tools for building a gilt ladder of ILGs if that is of any interest, including this one
Gilt Ladder Builder · Streamlit
Just to say that may get you to a page for conventional gilts but there is a column to the left where you can change that to ILGs (and change other things to taste).

OP do you really not have a private pension as well as the state one?

Yes I do have a small private pension from a previous workplace (in the 1980s!) that I had forgotten about until I was contacted by someone 10 years ago saying something had been mis-sold to me - I received compensation and haven't touched it or added to it since, so it's just accruing. Hubby has a private pension and annuities that he still pays into and can't be touched for years. Building up then selling our business has proved us with a tidy lump sum hence being able to largely live off the savings interest going forward. I have a small trading account with Interactive Investor, and a change in their fee policy this year now covers a S&S ISA and a SIPP as well, so will be taking a closer look at those.

Back to the gilts - the most enticingly priced ones are of course longer term, when I may not be around to benefit from the tax free element. What happens to the gilts - can they trundle along until say 2056 and my descendants can then benefit? Or will they have to be sold early when I shuffle off - and would CGT be payable on them then?

I am going to be speaking with a financial advisor later this year re investments, tax and inheritance issues but I would like to go armed with sensible questions and reasonable understanding.

I would also be interested in the answer to this question if anyone knows.

fuzzzzy

HeadScratching said:

fuzzzzy said:

You could pay £2880 into a SIPP every year until 75, to extend your basic rate band.

Sorry for my ignorance but why specifically £2880?

As others have said it is the maximum you can pay in as a non-earner. It is only a small amount but if someone is just above the higher tax rate threshold it can be enough to bring them back into the basic rate band.

nottsphil

https://forums.moneysavingexpert.com/discussion/comment/81852631#Comment_81852631

I'm extremely surprised that nobody has either challenged or confirmed this in the week since it was posted. It would seem to be crucial to the amount of tax the OP pays on her interest.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81863786#Comment_81863786

It is non savings non dividend income which impacts the starter rate for savings see below

Starting rate for savings | Low Incomes Tax Reform Group