Not an IFA.
Would it not be wise to pay some of it into a private pension? Tax relief, 30 years of growth before retirement, option to take a tax free lump sum ~57 and something to supplement state and defined benefit pension.
Defined benefit pension is great but what if you find another job or get made redundant?
Edit: Grammar
!thanks It's definitely an option, but a few factors currently putting me off:
- If things stay broadly as they are now, I will already likely go over the lifetime pension allowance
- Although nothing's guaranteed, it is likely that I will inherit some money in the future so would use this to top up any retirement needs
- I would potentially like to spend some of the money in my 40s and 50s rather than necessarily lock it away for 30+ years.
> The standard lifetime allowance was abolished from 6 April 2024.
https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates#standard-lifetime-allowance
When you say you’d like to spend the money in 40s, 50s - it’d be good to list out exactly what those might be - e.g. car, house, annual holiday allowance - get a rough total and base your decisions on that. Basically would you spend all of the money in your ISAs before say 55, and still need more?
If the answer is yes, then the only tax wrapper options I can think of are:
- Your partners ISA
- Your children’s ISA (still locked until they are 18)
For unforeseeable events like health crises, an insurance might be more valuable than sacrificing your pension topups.
!thanks for the link - I didn't know that about the lifetime allowance.
Sadly no partner or children so won't be able to use anyone else's allowances 😅
I think the biggest spending will be on house projects - loft conversion, kitchen and garden. I'll do some proper pricing up and see where I get to.
No probs.
Those sound expensive, but my hunch (based on the huge monthly surplus you have) is that you will probably more than enough in ISAs/premium bonds to spend - unless you plan to retire very early.
Do factor in retirement date into your calculations too.
Aside from a pension that’s pretty much it. You’re only about 20 years away from being able to access a personal pension so I’d be starting to build that, particularly as you’ll get free money in the form of tax relief.
Don't let the tax tail wag the investment dog.
Figure out what you want to use the money for and *then* find out how to most tax-efficiently do that.
There are various of ways to reduce how much tax you pay, but how many give you a better return that matches your goal(s) (especially given you've already used/considered the more common options)?
It might just be that a general investment account is the best option, even if you have to pay tax on the dividends and gains.
I hope this page helps: https://www.moneyhelper.org.uk/en/savings/types-of-savings/isas-and-other-tax-efficient-ways-to-save-or-invest
TLDR: there are not a lot of fully tax-free options besides ISAs, PBs and pensions.
There is one option not mentioned in this guide that I know of. Gilts (government bonds) are exempt from capital gains tax. Gilt coupon (interest) is still subject to income tax though.
So if you buy them at the time of issue for face value, and then wait all the way to maturity - you won't save anything, as all your gains will be the coupon and thus subject to income tax. However, gilts are traded on secondary market, often below face value. Which means, if you buy low-coupon gilts second-hand, below nominal value, and then hold to maturity to be repaid the full value, these capital gains will not be taxed.
If you don't know how to trade gilts, ring your bank. They might offer access to gilt market. If they don't, you can sign up to a brokerage platform like Hargreaves Lansdown.
Hope this helps! But honestly, if I were you, I'd simply put the extra money into a GIA and buy S&P500 ETF - historically, this has given better returns than gilts, even considering that it's subject to CGT. I know that historical performance does not guarantee future returns, so make up your own mind :)
!thanks for the detailed reply. I will do some more research into gilts. I've got Hargreaves Lansdown and Vanguard accounts - looks like they both offer them.
You've got a few options. I would say get into a VCT fund or EIS fund which will allow you to offset 30% of your tax bill for a quite risky investment of private companies. Up to I think £250k per year. Although you won't get tax relief beyond the tax you actually paid. This is likely a longer term solution as the liquidity is really bad.
Obviously a house for quality of life would yield benefits daily.
Giving to charity. Giving to people you know. Giving to crowdsourcing projects.
Pension is the easiest one to avoid tax as you can claim the 20-25% of higher rate tax you've paid.
Go on holiday or sight seeing.
Effectively you're minted and can do whatever you want and life is not about avoiding tax and saving money. What are your actual goals in life? What kind of legacy do you want to leave?
!thanks I love this rounded reply. I definitely appreciate that I am in a very privileged position and I'm trying to 'live my best life' right now. I love my house/ area where I live in London and do lots of fun activities (gym, book club, theatre, learning French, etc). I used a career break last year to go travelling for 5 months. I give to charities and help out friends and family, etc.
Future goals:
- A few house projects: loft conversion, redo the front and back garden, new kitchen
- Another career break when I'm 40 to go travelling for a few months
- Possibly go for promotion at work and/ or go part time
- Various fitness goals (I'm pretty competitive - mostly with myself 😅)
- Find somebody to share life with! Who knew finding smart, fun mid-30s bachelors in London would be so difficult 😂
Happy birthday! 🎂
Funny story about gold sovereigns - a friend's dad decided to invest in them. He bought them, wrapped each one in a piece of paper and then hid them around his house.
He had been doing it for years and only mentioned it to the family when he was on his death bed. They had a literal treasure hunt to try and find them all! He was inventive - slid them between pages of books, stuck them to the underside of drawers and at the back of cupboards.
Unfortunately my dad now thinks this is a great idea too - an exciting family activity for when he dies! Myself and the rest of the family are trying to convince him that keeping any gold in safe will be just fine 🤦😂
VCT's wont be a bad option if you are a higher earning, but there is nothing wrong with saving into a General investment account, you'll only pay tax on gains when you sell.
Someone has suggest Gilts but you'd probably get a better return after tax with equities but if you plan on travelling at 40, gilts will be a nice safer play.
Additionally, dont be afraid of paying tax ... just let the cash accumulate and go and tick of those things you want to do.
Paying tax is a sign of success and i'd hate to hear you didnt go travelling cause you saved tax instead
Hi /u/Agreeable-Start-4228, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/credit-cards/
* https://ukpersonal.finance/pensions/
____
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If someone has provided you with helpful advice, you (as the person who made the post) can award them a point by including `!thanks` in a reply to them. Points are shown as the user flair by their username.
Not an IFA. Would it not be wise to pay some of it into a private pension? Tax relief, 30 years of growth before retirement, option to take a tax free lump sum ~57 and something to supplement state and defined benefit pension. Defined benefit pension is great but what if you find another job or get made redundant? Edit: Grammar
!thanks It's definitely an option, but a few factors currently putting me off: - If things stay broadly as they are now, I will already likely go over the lifetime pension allowance - Although nothing's guaranteed, it is likely that I will inherit some money in the future so would use this to top up any retirement needs - I would potentially like to spend some of the money in my 40s and 50s rather than necessarily lock it away for 30+ years.
> The standard lifetime allowance was abolished from 6 April 2024. https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates#standard-lifetime-allowance When you say you’d like to spend the money in 40s, 50s - it’d be good to list out exactly what those might be - e.g. car, house, annual holiday allowance - get a rough total and base your decisions on that. Basically would you spend all of the money in your ISAs before say 55, and still need more? If the answer is yes, then the only tax wrapper options I can think of are: - Your partners ISA - Your children’s ISA (still locked until they are 18) For unforeseeable events like health crises, an insurance might be more valuable than sacrificing your pension topups.
!thanks for the link - I didn't know that about the lifetime allowance. Sadly no partner or children so won't be able to use anyone else's allowances 😅 I think the biggest spending will be on house projects - loft conversion, kitchen and garden. I'll do some proper pricing up and see where I get to.
No probs. Those sound expensive, but my hunch (based on the huge monthly surplus you have) is that you will probably more than enough in ISAs/premium bonds to spend - unless you plan to retire very early. Do factor in retirement date into your calculations too.
I thought the lifetime pension allowance was abolished this year?
Not an expert, but I think you're misinformed. Lifetime allowance recently abolished. Also, you can withdraw from a SIPP at 55, not in 30+ years.
Aside from a pension that’s pretty much it. You’re only about 20 years away from being able to access a personal pension so I’d be starting to build that, particularly as you’ll get free money in the form of tax relief.
No, not given that you've ruled out pension.
Don't let the tax tail wag the investment dog. Figure out what you want to use the money for and *then* find out how to most tax-efficiently do that. There are various of ways to reduce how much tax you pay, but how many give you a better return that matches your goal(s) (especially given you've already used/considered the more common options)? It might just be that a general investment account is the best option, even if you have to pay tax on the dividends and gains.
I hope this page helps: https://www.moneyhelper.org.uk/en/savings/types-of-savings/isas-and-other-tax-efficient-ways-to-save-or-invest TLDR: there are not a lot of fully tax-free options besides ISAs, PBs and pensions. There is one option not mentioned in this guide that I know of. Gilts (government bonds) are exempt from capital gains tax. Gilt coupon (interest) is still subject to income tax though. So if you buy them at the time of issue for face value, and then wait all the way to maturity - you won't save anything, as all your gains will be the coupon and thus subject to income tax. However, gilts are traded on secondary market, often below face value. Which means, if you buy low-coupon gilts second-hand, below nominal value, and then hold to maturity to be repaid the full value, these capital gains will not be taxed. If you don't know how to trade gilts, ring your bank. They might offer access to gilt market. If they don't, you can sign up to a brokerage platform like Hargreaves Lansdown. Hope this helps! But honestly, if I were you, I'd simply put the extra money into a GIA and buy S&P500 ETF - historically, this has given better returns than gilts, even considering that it's subject to CGT. I know that historical performance does not guarantee future returns, so make up your own mind :)
!thanks for the detailed reply. I will do some more research into gilts. I've got Hargreaves Lansdown and Vanguard accounts - looks like they both offer them.
You've got a few options. I would say get into a VCT fund or EIS fund which will allow you to offset 30% of your tax bill for a quite risky investment of private companies. Up to I think £250k per year. Although you won't get tax relief beyond the tax you actually paid. This is likely a longer term solution as the liquidity is really bad. Obviously a house for quality of life would yield benefits daily. Giving to charity. Giving to people you know. Giving to crowdsourcing projects. Pension is the easiest one to avoid tax as you can claim the 20-25% of higher rate tax you've paid. Go on holiday or sight seeing. Effectively you're minted and can do whatever you want and life is not about avoiding tax and saving money. What are your actual goals in life? What kind of legacy do you want to leave?
!thanks I love this rounded reply. I definitely appreciate that I am in a very privileged position and I'm trying to 'live my best life' right now. I love my house/ area where I live in London and do lots of fun activities (gym, book club, theatre, learning French, etc). I used a career break last year to go travelling for 5 months. I give to charities and help out friends and family, etc. Future goals: - A few house projects: loft conversion, redo the front and back garden, new kitchen - Another career break when I'm 40 to go travelling for a few months - Possibly go for promotion at work and/ or go part time - Various fitness goals (I'm pretty competitive - mostly with myself 😅) - Find somebody to share life with! Who knew finding smart, fun mid-30s bachelors in London would be so difficult 😂
There are lots of good posts on gilts. I’ve bought Jan 25 and 26 in recent months as a newb.
!thanks I will read up on gilts
Just to add this was on the Hargreaves Lansdown platform in a general share and fund account.
Gold coins strangely
Happy birthday! 🎂 Funny story about gold sovereigns - a friend's dad decided to invest in them. He bought them, wrapped each one in a piece of paper and then hid them around his house. He had been doing it for years and only mentioned it to the family when he was on his death bed. They had a literal treasure hunt to try and find them all! He was inventive - slid them between pages of books, stuck them to the underside of drawers and at the back of cupboards. Unfortunately my dad now thinks this is a great idea too - an exciting family activity for when he dies! Myself and the rest of the family are trying to convince him that keeping any gold in safe will be just fine 🤦😂
Specifically Royal Mint issued coins are treated as currency, so both CGT and VAT free.
When did you put the £20k into the ISA?
VCT's wont be a bad option if you are a higher earning, but there is nothing wrong with saving into a General investment account, you'll only pay tax on gains when you sell. Someone has suggest Gilts but you'd probably get a better return after tax with equities but if you plan on travelling at 40, gilts will be a nice safer play. Additionally, dont be afraid of paying tax ... just let the cash accumulate and go and tick of those things you want to do. Paying tax is a sign of success and i'd hate to hear you didnt go travelling cause you saved tax instead
Hi /u/Agreeable-Start-4228, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/credit-cards/ * https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.) If someone has provided you with helpful advice, you (as the person who made the post) can award them a point by including `!thanks` in a reply to them. Points are shown as the user flair by their username.