Age 65 age allowance and interest from capital

vegtablepatch

A friend is 65 this year and hopes to benefit from the tax age allowance . His earned income will be in the region of £22,000 but he has capital. He has maximum in isas and premium bonds. plus approx £40,000 in other investments. What are best long and short term investments, disregarded for taxation? Alternatively do inland rev. rules permit transfer of capital to his wife in order for him to benefit for the age allowance.?

Hope someone can give me advice.
Thanks.
Vegie.

RayWolfe

He should not allow tax to rule his investments, but should consider total net return.
He may give his wife some capital ans she may deposit tax free up to her personal allowance.

Mikeyorks

At £22k he is already over the 08-09 threshold at which the clawback starts (£21,800). So (£1 reduction for every £2 above the limit) his 'new' allowance of £9030 ... is already reduced to £8930. But he needs around a further £7k of gross income .. before this fully retreats back to the minimum £5435

The ISAs and Premium Bonds, as you appear to realise, don't count .... as they don't constitute income. He could channel £30k of the £40k into NS&I Index linked Certificates? (tax free ... min 3 years ... £15k each {max per issue} for him and wife). Or he could give the whole £40k into his wife's name ..... providing that isn't just moving the same problem?

But as RayWolfe correctly says .... he needs to think long and hard before he potentially sacrifices income in order to fully retain the age related allowance. If his £40k is earning say 6% gross (£2.4k) ... he will still keep a good chunk of the extra allowance.

firstinflight

If his wife is not using her full allowance, then a transfer may make sense. Being a transfer between spouses, there won't be any CGT or IHT implications of doing so.

vegtablepatch

Mikeyorks wrote: »

At £22k he is already over the 08-09 threshold at which the clawback starts (£21,800). So (£1 reduction for every £2 above the limit) his 'new' allowance of £9030 ... is already reduced to £8930. But he needs around a further £7k of gross income .. before this fully retreats back to the minimum £5435

The ISAs and Premium Bonds, as you appear to realise, don't count .... as they don't constitute income. He could channel £30k of the £40k into NS&I Index linked Certificates? (tax free ... min 3 years ... £15k each {max per issue} for him and wife). Or he could give the whole £40k into his wife's name ..... providing that isn't just moving the same problem?

But as RayWolfe correctly says .... he needs to think long and hard before he potentially sacrifices income in order to fully retain the age related allowance. If his £40k is earning say 6% gross (£2.4k) ... he will still keep a good chunk of the extra allowance.

Thank you. All the posts have been helpful. The aim is to maximise income
either by alternative tax free investment or transfer capital to wife if allowed. His wife has a low income.

The plan was to invest £20000 in ICICI savings fixed 1 year @ 7% and £20000 in Kaupthing Edge @ 6.31%. It appears instead of investing in his name he can transfer £40000 to wife, she will invest in these accounts and they will gain by a lower tax bill. Have I understood and is this correct?:question: Vegie.

RayWolfe

You have understood correctly ... I hope he trusts his wife, because when the cash is in her name, she could use it for handbags ..... ;-)

vegtablepatch

RayWolfe wrote: »

You have understood correctly ... I hope he trusts his wife, because when the cash is in her name, she could use it for handbags ..... ;-)

Thank you Ray. He must do as he has transferred £40,000 to his wife and offered to buy her a bag as well. Shes :j
Vegie.

RayWolfe

He is either very considerate or believes in preemptive strikes!

Mikeyorks

RayWolfe wrote: »

..... or believes in preemptive strikes!

I'd assumed Ray, the handbag was for the usual paraphenalia ..... why do you think he's going to hit her with it?

RayWolfe

Touche ............. :rotfl: