Tax Free Investment Options

a18041967

I'm a 40% tax payer and I have +£90k that I need to do something with, if I leave it in my Chase account I will receive interest (not a great amount) but the amount I will receive will exceed my tax free interest allowance. As a result I have invested £20K in a Cash ISA which will be OK but the £20K limit will reduced in 2027 so will need to plan for this at some point. I already have £6k in premium bonds but plan to increase this to the £50k max over a 6 month period by buying £250 per day.

This leaves we with approximately £25K that I need to invest in something that will return money and not be taxable are there any options for this and 2027 that I should consider?

flaneurs_lobster

This leaves we with approximately £25K that I need to invest in something that will return money and not be taxable are there any options for this and 2027 that I should consider?

How's your pension doing?

Woodstok2000

Why not buy all the premium bonds now?

eskbanker

I already have £6k in premium bonds but plan to increase this to the £50k max over a 6 month period by buying £250 per day.

Why not just buy £44K in one purchase?

In terms of the wider question, I'd reiterate the usual mantra on here about letting the tax tail wag the dog - it'll generally be more productive to aim to maximise net return than to avoid tax as such, so the latter shouldn't be seen as some sort of prerequisite…

a18041967

https://forums.moneysavingexpert.com/discussion/comment/82115697#Comment_82115697

I'm lucky enough to have 2 end salary pensions, along with two standard pensions, I'm maxing out the amount I can contribute and my employer will match which was a way to offset some of the 40% tax. One of the end salary pensions I'm already drawing money and is where the £90k originally came from to buy a house. But the income I'm receiving is being taxed at 40% £1000 down to £600 per month!!

I'm currently trying to reduce my working hours from 5 days to 3 days via the flexible working which will result in me moving back in to the 20% bracket

fuzzzzy

Buy premium bonds in one go at the end of a month, in tranches if you want. Might as well get the interest in the meantime rather than buying on a daily basis.

a18041967

https://forums.moneysavingexpert.com/discussion/comment/82115712#Comment_82115712

Interesting question, my view and experience is that I spread my investment, instead of having one £44k block of premium bonds I have multiple smaller blocks spread across the range. It would be interesting to see peoples views on this but currently the £6k is winning at least £50 per month, in the past it has been multiple wins per month on occasions

EthicsGradient

No, there's no way of "spreading" across Premium Bonds that has any effect. You have to accept that the prizes come at random, but the probability is distributed evenly across all bonds. So it's either worth using them to the maximum now, or not at all (and as a higher rate payer, it probably is - the 4.35% nominal rate will perhaps work out at 4% for the smaller prizes there's a realistic chance of winning, which would be a 6.67% rate before 40% tax - only the best regular saver accounts beat that, and that's for a limited amount).

It's unclear how long you'd like to leave this before using it. You could use low-coupon gilts, and hold them to maturity - the coupon, ie interest, is small (under 1%, usually), but taxed, but most of the return is in the price paid/received - and you don't pay capital gains tax on gilts. But if you don't have an account with a platform that deals in gilts, you may think this is too much faff. Next tax year you can put another £12k into a cash ISA, and that's pretty much the 90k accounted for (20k+50k+12k).

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82115723#Comment_82115723

Statistically, your odds of winning, and total return, are no different from one large block than multiple smaller ones totalling the same amount, so it just comes down to superstition rather than anything rational…

If you're winning at least £50 per month from a £6K holding, that's a 10+% annual return, which is both extraordinary and unsustainable, so shouldn't form any part of your thinking for future returns!

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/82115723#Comment_82115723

You believe that there is a greater chance of winning a prize if the bonds are bought in small tranches rather than in one large block?

You are wrong.

Vitor

You could buy shares or an ETF that don't pay a dividend and aim for capital gain to use the annual £3,000 CGT exemption on selling. Bitcoin similarly.

Or buy assets which are free from CGT and may increase in value, obvious choice is gold Britannias or Sovereigns as they are legal tender.

Interest on gilts is taxable, but gains between the purchase price and redemption value are exempt from CGT. That can make low-coupon gilts particularly useful to higher-rate taxpayers, but I'm not that familiar with this investment.

NB You can still put £20k into a S&S ISA in 2027, it's cash ISAs that are limited to £12k for the under 65s.