I currently have about £120,000 in stocks and shares ISA, I have over a number of years moved funds from non ISA into the ISA account. I will not be adding to this balance from here on. This year I opened a Cash ISA (1 year term).
However, I have been stupidly (I think ?) drawing my dividends from the share ISA as spending. At the same time I have £80,000 Cash savings elsewhere which I’m holding onto and paying tax on the interest.
I should be spending my Cash savings, shouldn’t I ? A then next year open a new Cash ISA for £20,000 and transfer the cash from stocks ISA across to the Cash ISA ?
Am I correct here ?
Except that as its stocks and shares and returns (dividends) are not guaranteed there is some merit in claiming that profit / benefit as cash - assuming it would otherwise be reinvested as stocks and shares and then subject to market fluctuations. Perhaps?
I currently have about £120,000 in stocks and shares ISA, I have over a number of years moved funds from non ISA into the ISA account. I will not be adding to this balance from here on. This year I opened a Cash ISA (1 year term).
However, I have been stupidly (I think ?) drawing my dividends from the share ISA as spending. At the same time I have £80,000 Cash savings elsewhere which I’m holding onto and paying tax on the interest.
I should be spending my Cash savings, shouldn’t I ? A then next year open a new Cash ISA for £20,000 and transfer the cash from stocks ISA across to the Cash ISA ?
Am I correct here ?
Yes, leave the tax free where it is, growing tax free, spend what isn't tax free. Do you have premium bonds? Can put £50k in there and any returns are tax free, although not guaranteed what you will get.
Next year open a cash ISA and put in £20k NEW money, if you want to transfer from Stocks to cash do a transfer, don't withdraw otherwise that uses up the next £20k. You could if you wanted transfer all £120k now, most of the big places/well known do transfers. Paragon who top the 1/2 year ISA rate at 5.82% allow transfers. You might find your existing S&S ISA provider has a cash option?
I'm not saying taxing savings interest is wrong in general as there are many reasons it should be. However one thing that is ignored is that many people see savings interest as a protection against inflation. For example a pensioner with savings, those savings are effectively eroded by inflation. Interest helps protect it, but with interest rates being below inflation, it is still being eroded; tax on interest amplyfying it.
The other thing nobody has mentioned to avoid tax is looking to increase pension contributions, but advice needed here based on individual circumstances.
If a Pensioner has non ISA savings you need to ask the question why? I know I keep harking on, but why when for at least 7 years it's been an annual £20k allowance so that's £140k, if you go all the way back to 1999 when they came out to date it's about £300k allowance, if you go back to PEP's that adds about another £80k back to 1987, plus you had a little bit from TESSA's which I think was 1991-1999.
So in essence those tax exempt schemes have allowed people to deposit over£400k, you then have premium bonds at £50k. So a couple can have entered around £900k all with a tax free status. In realty even if all in Cash that'd be well north of £1m
For the vast majority of people that's way way more than they could ever have done, it's only when it comes to a one of lump like Inheritance that for the average person it may become an issue.
As you lastly say, there are pension contributions, although that's tax free in, taxable out v's ISA's which is taxable income in, tax free out.
I still believe for 95% of the population there should be no reason to be unnecessarily paying tax on savings interest.
I’m in a position where I could be mortgage free if a pay a big chunk off in the next couple of years. I’d want to be doing something with that money that’s usually put aside for mortgage payments rather than just have it sitting there each month. The ISA route looks like it could be a good one to start building something.
I like the idea of trying to build an income through savings so that when I retire I don’t have to rely on just my pension. Admittedly, I’ve done a poor job of not paying enough into that until recently - so have some catching up to do. I’ve just turned 36, and feel like I really need to turn that part around if it’s going to serve me well in 20-30 years time.
At 36 you've still a long way to go for pension so no real damage done if you are topping it up from your mid 30's.
Agreed on the income from savings, it's about having a mixture and flexibility in my view. A pension is still hard to beat if you are a higher rate tax payer. That 40/60/45% tax relief can be massive. There's potential for IHT benefit as well.
And here's a new one for some;
Using your pension to pay off your mortgage,
If you are a higher rate tax payer, rather than pay a mortgage repayment, go interest only. put the rest into pension and thank the government later for paying off 40% of your mortgage (assuming you can do so from the 25% lump sum, tax free, withdrawal).
Not sure if this is genius or the worst idea I’ve ever heard.
I know @Rob7Lee isnt referring to them directly but pension mortgages used to be an actual financial product, though I've not seen them mentioned for a long time. They were available when I first bought a property 30 years ago or so, but the idea of still having a mortgage at 65 was too depressing to contemplate. I've also long been wary of depending on pension pay outs as I simply dont trust governments of any shade not to faff with the rules and remove the advantages on which you're depending, leaving you unable to meet your financial goals.
I know @Rob7Lee isnt referring to them directly but pension mortgages used to be an actual financial product, though I've not seen them mentioned for a long time. They were available when I first bought a property 30 years ago or so, but the idea of still having a mortgage at 65 was too depressing to contemplate. I've also long been wary of depending on pension pay outs as I simply dont trust governments of any shade not to faff with the rules and remove the advantages on which you're depending, leaving you unable to meet your financial goals.
I've only ever set up 1 in my entire financial/mortgage advising life. Good idea if the circumstances are right but generally they are not.
However, interest only mortgages are a lot harder to get nowdays & usually you need to be on a good income - you wont get one if you are on NMW.
I’m in a position where I could be mortgage free if a pay a big chunk off in the next couple of years. I’d want to be doing something with that money that’s usually put aside for mortgage payments rather than just have it sitting there each month. The ISA route looks like it could be a good one to start building something.
I like the idea of trying to build an income through savings so that when I retire I don’t have to rely on just my pension. Admittedly, I’ve done a poor job of not paying enough into that until recently - so have some catching up to do. I’ve just turned 36, and feel like I really need to turn that part around if it’s going to serve me well in 20-30 years time.
At 36 you've still a long way to go for pension so no real damage done if you are topping it up from your mid 30's.
Agreed on the income from savings, it's about having a mixture and flexibility in my view. A pension is still hard to beat if you are a higher rate tax payer. That 40/60/45% tax relief can be massive. There's potential for IHT benefit as well.
And here's a new one for some;
Using your pension to pay off your mortgage,
If you are a higher rate tax payer, rather than pay a mortgage repayment, go interest only. put the rest into pension and thank the government later for paying off 40% of your mortgage (assuming you can do so from the 25% lump sum, tax free, withdrawal).
Not sure if this is genius or the worst idea I’ve ever heard.
The world of higher rate tax payers!
Definitely genius
It's only going to work for a certain demographic, you'll need a fairly high salary to get interest only, you'll also need likely alternatives to just a draw down pension for your retirement and you'll need to have capacity in your Pension allowances to pay more in, you'll also need to time the mortgage ending with when you can access the pension.
But here's an example;
£200k mortgage for 25 years.
Assume a 4.5% average interest rate for those years
Repayment would be £1,111 a month or £333,370 repaid for the term and loan paid off. Interest Only would be £750 a month or £225,000 paid, full loan still outstanding
Pay the £451.25 a month extra into pension ( as you will receive (if 40% payer) £90.25 tax relief) meaning costs overall is the same as the £1,111 repayment. Assume an average return of 8% through those 25 years and broadly that would give you in pension £430k. Assuming you have built overall a pot of at least £800k, take out £200k tax free and pay off mortgage leaving you an extra £230k of pension, thank HMRC and the government.
At worst you are still paying the £1,111 a month, but you'd make an extra £205k. If you are falling into the 60% band then it works even better.
There are many potential pitfalls some as highlighted by @idlehans but if you are wise with your money, have other alternatives if the worst happens, it can at worst give you extra in your pension that you otherwise wouldn't have had.
As I've said many times, you don't get many tax advantages, so try as best you can to make the most of each and every one of them.
Saw mention earlier of CGT. Does anyone know if, with regard to shares, you can offset gains in one with losses on another? Feels like a really simple question, but I’ve found it impossible to find an answer online. Thanks 🙂
Saw mention earlier of CGT. Does anyone know if, with regard to shares, you can offset gains in one with losses on another? Feels like a really simple question, but I’ve found it impossible to find an answer online. Thanks 🙂
Yes, you can and there are various rules about off-setting losses from earlier years.
Saw mention earlier of CGT. Does anyone know if, with regard to shares, you can offset gains in one with losses on another? Feels like a really simple question, but I’ve found it impossible to find an answer online. Thanks 🙂
As above yes, but remember you have to crystallise the loss/gain, ie sell the shares.
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
Thank you @superclive98 and @Rob7Lee. I have acquired few different shares, including my old Save As You Earn ones from Barclays. During my later years at Barclays, they really tightened up on share dealing and I was unable to buy/sell without going through a load of compliance hoops, which sometimes took a month to give agreement. You then had 48 hours to transact or face having to start again. Like many, I just gave up and didn’t bother trading any more.
Regarding ISAs, does the interest you make on them become available to you at any time? Or is that also ‘locked away’ along with the savings you put in there for as long as you have the ISA open?
Apologies if the question isn’t well structured. I’ve always been a cash saver, and only now looking at ways of seriously making changes. I’ve maxed out Premium Bonds, upped my pension contributions and want to do something else on top.
Depends which cash ISA you take, one such as an instant access with Paragon or Shawbrook pays interest monthly. Most of the fixed one's pay on maturity, but shop around as there are a few who pay interest monthly such as Shawbrook again and Kent reliance.
Not sure I’d go as far as criminal 😂 but there’s no reason for 95%+ of the population to be paying much tax on interest.
£50k premium bonds and £20k each year in an ISA, double if a couple.
be really interested to hear why people are paying tax, if it is ISA (or lack of) related, inheritance which could be a cause, or something else.
I guess I'm fortunate to have 4 pensions giving me an income that takes me into the higher tax bracket. I have maxed my ISA allowance for the past 3 years but prior to that didn't bother (idiot...). Have money in a mix of equities, bonds and fixed rate/instant access accounts. But after the tax free allowance all interest is at 40%.
Are the 4 pensions all final salary, or in drawdown/flexible or Annuity. As in reality if you aren't spending all four pensions, if you can you may as well not draw on some of them if that option is available and leave them in the tax free wrapper.
It's not really my place but I'll ask, feel free to tell me to mind my own! But you're retired, have pensions that seem to be considerably more than you need if you are maxing out your 20k ISA limit, what exactly are you saving and not spending £20k a year for? You can't take it with you as they say!
Two of the 4 pensions are final salary, 1 is a SIPP (that I started from my own limited company) and in drawdown the other is the state pension. I have a 5th small SIPP that is not in drawdown. I'm saving cos that's what I've always done! Keep thinking I will buy somewhere abroad...have also been considering a rental that I can AirBnB out...but not sure I can be bothered...
So the SIPP you are drawing on, why? You're taking it out of a tax free wrapper and paying 40% on it then putting the remaining 60% in the bank!! Just don't draw it (or draw less of it).
Not sure why you'd do an Air B&B - you aren't spending the money you already have! You don't need to make more.
Again, I don't know your personal/family situation, but if you are saving it to pass on, pass it on now, or go any enjoy it, if that means a place abroad, or an alternative do an extra 2-3 expensive holidays a year, you've clearly worked for everything you have, now is the time, don't leave it!
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
It is true the Eurozone is not a harmonious place & many countries are not happy with 2 or 3 "big" countries being favoured over the others. Not sure if the Euro itself is in danger but as a currency it is not favoured over the Dollar & Sterling.
It is also true that the UK stockmarket is currently "undervalued" when compared to the US & Europe and really hasn't grown much since the Brexit referendum in 2016.
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
It is true the Eurozone is not a harmonious place & many countries are not happy with 2 or 3 "big" countries being favoured over the others. Not sure if the Euro itself is in danger but as a currency it is not favoured over the Dollar & Sterling.
It is also true that the UK stockmarket is currently "undervalued" when compared to the US & Europe and really hasn't grown much since the Brexit referendum in 2016.
It could be that they are factoring in a change of government that will see UK growth at last.
I wouldn’t pay much attention to a couple of Express articles predicting the Euro imminent collapse though
I was 55 a couple of weeks ago. I have a fairly substantial pension pot around 760k which I don’t wish to touch for revenue purposes but will pay off a chunk of mortgage at the end of the year.
I am leaving my career job and forgoing a large salary of nearly 100k pa . I have no certain income to come in. My wife is for the first time in a long time working full time and earning well. I reckon I could earn 35-40k a year and be as comfortable as we have been privileged enough to be the last few years.
We have some savings ( around 45k) but I will need 15-20 of that for a project and to allow me 3 months off. We have no ISA’s
2 Questions if someone can help
Am I right in thinking that taking the tax free money from my pension pot doesn’t trigger full crystallisation and I can still put significant sums into the pot should I wish to do so
Can I use my tax free sum from pension pot to switch to an ISA and if yes is it separate from other income if one takes the interest as income
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
It is true the Eurozone is not a harmonious place & many countries are not happy with 2 or 3 "big" countries being favoured over the others. Not sure if the Euro itself is in danger but as a currency it is not favoured over the Dollar & Sterling.
It is also true that the UK stockmarket is currently "undervalued" when compared to the US & Europe and really hasn't grown much since the Brexit referendum in 2016.
It could be that they are factoring in a change of government that will see UK growth at last.
I wouldn’t pay much attention to a couple of Express articles predicting the Euro imminent collapse though
Not sure the articles were predicting a complete collapse, imminent or otherwise. I was aware of the leaning of the media it was reported in (one in the DE and 1 in the Telegraph). A change in government won't be for over a year, so it is unlikely that is driving anything.
The EU is currently experiencing some growth (albeit small but better than the eurozone) and the IMF have even had to increase their growth forecast for the UK!
I was 55 a couple of weeks ago. I have a fairly substantial pension pot around 760k which I don’t wish to touch for revenue purposes but will pay off a chunk of mortgage at the end of the year.
I am leaving my career job and forgoing a large salary of nearly 100k pa . I have no certain income to come in. My wife is for the first time in a long time working full time and earning well. I reckon I could earn 35-40k a year and be as comfortable as we have been privileged enough to be the last few years.
We have some savings ( around 45k) but I will need 15-20 of that for a project and to allow me 3 months off. We have no ISA’s
2 Questions if someone can help
Am I right in thinking that taking the tax free money from my pension pot doesn’t trigger full crystallisation and I can still put significant sums into the pot should I wish to do so
Can I use my tax free sum from pension pot to switch to an ISA and if yes is it separate from other income if one takes the interest as income
Thanks in advance
Golfie is best to advise re crystallisation, but I’d always thought taking the 25% would count.
re ISA, you can’t switch as such, but you can use this tax years £20k allowance, any income from ISA’s are tax free.
I was 55 a couple of weeks ago. I have a fairly substantial pension pot around 760k which I don’t wish to touch for revenue purposes but will pay off a chunk of mortgage at the end of the year.
I am leaving my career job and forgoing a large salary of nearly 100k pa . I have no certain income to come in. My wife is for the first time in a long time working full time and earning well. I reckon I could earn 35-40k a year and be as comfortable as we have been privileged enough to be the last few years.
We have some savings ( around 45k) but I will need 15-20 of that for a project and to allow me 3 months off. We have no ISA’s
2 Questions if someone can help
Am I right in thinking that taking the tax free money from my pension pot doesn’t trigger full crystallisation and I can still put significant sums into the pot should I wish to do so
Can I use my tax free sum from pension pot to switch to an ISA and if yes is it separate from other income if one takes the interest as income
Thanks in advance
You are correct in think that taking the 25% tax free allowance does not trigger the MPAA restriction (which is £10k pa).
You are also correct in thinking income from an ISA is "separate" from other income you have but only because its totally tax free & therefore doesn't feature in any income tax calculations.
However, it is wildly suggested that you dont take money out of your pension to put into an ISA as you are simply moving it from one tax efficient vehicle to another. Personally I dont see an issue with it but in reality there is no need.
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
It is true the Eurozone is not a harmonious place & many countries are not happy with 2 or 3 "big" countries being favoured over the others. Not sure if the Euro itself is in danger but as a currency it is not favoured over the Dollar & Sterling.
It is also true that the UK stockmarket is currently "undervalued" when compared to the US & Europe and really hasn't grown much since the Brexit referendum in 2016.
It could be that they are factoring in a change of government that will see UK growth at last.
I wouldn’t pay much attention to a couple of Express articles predicting the Euro imminent collapse though
Not sure the articles were predicting a complete collapse, imminent or otherwise. I was aware of the leaning of the media it was reported in (one in the DE and 1 in the Telegraph). A change in government won't be for over a year, so it is unlikely that is driving anything.
The EU is currently experiencing some growth (albeit small but better than the eurozone) and the IMF have even had to increase their growth forecast for the UK!
I reckon the BNP Paribas analyst will be a bit exasperated to find his note taken up and spun by those two in a way he will not have wished for.
He is not the first to predict that European equities may be in for a rough ride in the next few months, nor the first to suggest that the UK might be a bit of a bargain. I would say that he would have more support for the first assertion than the second.
Anyway analysts are always looking to put out polemic notes like this and its important to understand that nearly all of us on here are not his target audience. Most of us are at most in funds that concentrate on certain regions. I’ve pared back a bit on the European funds I hold but I certainly didnt put the money in a UK focused equity fund. I’m buying cash for 6% returns, thank you very much. You won’t get many analysts proposing that course of action since it would be against the corporate interests of their employers.
Nationwide is offering 8% interest to existing members who can pay in up to £200 per month for one year. 3 withdrawals allowed without penalty. It's peanuts really, invest the full amount and you'd get £104 interest in 12 months time. But still, 8%...
Comments
Next year open a cash ISA and put in £20k NEW money, if you want to transfer from Stocks to cash do a transfer, don't withdraw otherwise that uses up the next £20k. You could if you wanted transfer all £120k now, most of the big places/well known do transfers. Paragon who top the 1/2 year ISA rate at 5.82% allow transfers. You might find your existing S&S ISA provider has a cash option?
If a Pensioner has non ISA savings you need to ask the question why? I know I keep harking on, but why when for at least 7 years it's been an annual £20k allowance so that's £140k, if you go all the way back to 1999 when they came out to date it's about £300k allowance, if you go back to PEP's that adds about another £80k back to 1987, plus you had a little bit from TESSA's which I think was 1991-1999.
So in essence those tax exempt schemes have allowed people to deposit over£400k, you then have premium bonds at £50k. So a couple can have entered around £900k all with a tax free status. In realty even if all in Cash that'd be well north of £1m
For the vast majority of people that's way way more than they could ever have done, it's only when it comes to a one of lump like Inheritance that for the average person it may become an issue.
As you lastly say, there are pension contributions, although that's tax free in, taxable out v's ISA's which is taxable income in, tax free out.
I still believe for 95% of the population there should be no reason to be unnecessarily paying tax on savings interest.
However, interest only mortgages are a lot harder to get nowdays & usually you need to be on a good income - you wont get one if you are on NMW.
It's only going to work for a certain demographic, you'll need a fairly high salary to get interest only, you'll also need likely alternatives to just a draw down pension for your retirement and you'll need to have capacity in your Pension allowances to pay more in, you'll also need to time the mortgage ending with when you can access the pension.
But here's an example;
£200k mortgage for 25 years.
Assume a 4.5% average interest rate for those years
Repayment would be £1,111 a month or £333,370 repaid for the term and loan paid off.
Interest Only would be £750 a month or £225,000 paid, full loan still outstanding
Pay the £451.25 a month extra into pension ( as you will receive (if 40% payer) £90.25 tax relief) meaning costs overall is the same as the £1,111 repayment. Assume an average return of 8% through those 25 years and broadly that would give you in pension £430k. Assuming you have built overall a pot of at least £800k, take out £200k tax free and pay off mortgage leaving you an extra £230k of pension, thank HMRC and the government.
At worst you are still paying the £1,111 a month, but you'd make an extra £205k. If you are falling into the 60% band then it works even better.
There are many potential pitfalls some as highlighted by @idlehans but if you are wise with your money, have other alternatives if the worst happens, it can at worst give you extra in your pension that you otherwise wouldn't have had.
As I've said many times, you don't get many tax advantages, so try as best you can to make the most of each and every one of them.
this may be helpful
https://techzone.abrdn.com/public/personal-taxation/Intro-Guide-CGT-2#:~:text=Any%20excess%20loss%20can%20be,excess%20of%20the%20annual%20exemption.
I was a bit surprised to see the headline so looked in to it - caveat, is is reported in the Teelgraph and DE
'BNP Paribas, a French multinational bank, is insisting that the British economy is performing better than expected, as the Euro continues to be at risk of collapse.
As a result, clients are being urged to invest into the UK stock market - arguing that a "cheap pound", among other things, are making Britain a more promising place to invest than the failing eurozone.
Top analysts at the bank - which employs around 193,000 people worldwide - have switched their preferences from the eurozone to the UK, which is a welcome boost for the London stock market after a mass exodus of investors in recent years.
This will likely result in rich investors following experts' advice and shifting their money into some of the largest UK-listed companies.'
It is also true that the UK stockmarket is currently "undervalued" when compared to the US & Europe and really hasn't grown much since the Brexit referendum in 2016.
We have some savings ( around 45k) but I will need 15-20 of that for a project and to allow me 3 months off. We have no ISA’s
Can I use my tax free sum from pension pot to switch to an ISA and if yes is it separate from other income if one takes the interest as income
Thanks in advance
The EU is currently experiencing some growth (albeit small but better than the eurozone) and the IMF have even had to increase their growth forecast for the UK!
Golfie is best to advise re crystallisation, but I’d always thought taking the 25% would count.
re ISA, you can’t switch as such, but you can use this tax years £20k allowance, any income from ISA’s are tax free.
You are also correct in thinking income from an ISA is "separate" from other income you have but only because its totally tax free & therefore doesn't feature in any income tax calculations.
However, it is wildly suggested that you dont take money out of your pension to put into an ISA as you are simply moving it from one tax efficient vehicle to another. Personally I dont see an issue with it but in reality there is no need.
He is not the first to predict that European equities may be in for a rough ride in the next few months, nor the first to suggest that the UK might be a bit of a bargain. I would say that he would have more support for the first assertion than the second.
Anyway analysts are always looking to put out polemic notes like this and its important to understand that nearly all of us on here are not his target audience. Most of us are at most in funds that concentrate on certain regions. I’ve pared back a bit on the European funds I hold but I certainly didnt put the money in a UK focused equity fund. I’m buying cash for 6% returns, thank you very much. You won’t get many analysts proposing that course of action since it would be against the corporate interests of their employers.
£125 for me - 1 x £100 1 x £25
£225 For Mrs R7L 1 x £100, 2 x £50, 1 x £25
£550 for Daughter 1 x £500, 1 x £50
EDIT £200 for Father in law.
Thats my best return yet
Margaret: 1 x £100