http://www.silverhairs.co.uk/ Here I will try to give some tips on savings and investments in the UK. Mon 20 Aug 2018 17:00:00 GMT http://www.silverhairs.co.uk/ http://www.silverhairs.co.uk/

I NEVER give advice on investments (or even savings), merely regurgitating what I see published for all to see. But, having done very nicely from monthy income funds in the past I must say I am tempted by some of the funds one sees offering over 4% income. And as they often stress, investments can go down as well as up. It can be sheltered from tax and capital gains in an ISA.

August 2018 At long last after years of sticking at 0.25% the Bank of England raised its going rate to 0.75%. This may not sound a big deal but it has repercussions. Firstly, it will be a sign for mortgage lenders to increase what they charge. This may have dire consequencies for cash-strapped people with large outstanding loans. Some are paying a standard amount of 4.5% while others have opted for relief by finding short term loan as low as 1.5%. On the savings side the rates may creep up from their current abyssmal level. But don't expect a sudden return to what you might have got even four years ago. When NS&I issued bonds paying 2.2% they were swamped with applications and reduced the rate to 1.95%. But from 10th April the new three year Investment Bond is going back up to 2.2%. You can add anything from £500 to a million and with the safest bank in town! As savings, this will be virtually tax free for most people. Are you stuck with it for the whole period ? The penalty for cashing in Income Bonds before the end of the period is only 90 days interest of the amount cashed in (which is less than many Banks and Building Societies charge). There is an option for people who have an existing maturing bond to get 2.25% for five years. But don't expect huge rises from your bank or building society which can still borrow cheaply from the Government's Term Funding Scheme, which means they have little incentive to raise savings rates to attract customer deposits, that they then lend out. And the Government has told the Bank of England it can increase the Term Funding Scheme fund by £25bn, meaning this situation is unlikely to change.

From April 2016 one aspect of savings changed. This benefited most people who have savings and investments, not just those on lower incomes. In fact around 28 million savers now benefit from this radical overhaul of High Street accounts. Every basic-rate taxpayer is now able to earn £1,000 interest a year tax free from savings accounts. (providing you can find somewhere to give you a decent rate of interest!) According the Money Savings Expert "Any interest you earn from bank accounts, savings accounts, credit union accounts, building societies, corporate bonds, government bonds and gilts is covered. This includes interest earned on other currencies (eg, US dollars, euros) held in UK-based savings accounts. Peer to Peer Lending interest is also covered, but dividend income from shares is not included in the allowance (although benefits in another way - see below **). It also includes interest distributions (but not dividend distributions) from authorised unit trusts, open -ended investment companies and investment trusts and most types of purchased life annuity payments" (end of quote)

Higher-rate taxpayers will be able to earn only £500 interest tax free. Effectively, this means that for 95 per cent of savers all interest in High Street accounts will be paid tax-free — giving them a 20 per cent boost. And with many bank accounts (e.g Santander) paying more than ISAs this will probably mean that people will begin to move cash from ISAs to those accounts. Up until April last year banks and building societies automatically deducted basic rate tax of 20 per cent before your interest is paid and passed it directly to HM Revenue & Customs. Higher earners paying 40 or 45 per cent income tax have to declare the interest they receive on a self-assessment form. Lower earners who don’t pay income tax may have to fill in a form at the bank or building society to stop the tax being deducted. But some may pay the interest gross. These deductions mean that someone with £20,000 in a High Street savings account paying 2 per cent earned only £320-a-year net interest if they were a basic-rate taxpayer but will now earn £400; higher-rate taxpayers and top-rate taxpayer will get a little more than before.

** The amount allowed free of tax on dividends will be £5000 for each individual. So someone with £100,000 invested and receiving a 5% dividend would not pay tax.

Although the TSB and Nationwide still pay regular customers 5% on regular savings up to a certain limited amount, these are usually for one year, after which the amount saved is put into a lower paying account. First Direct has a similar scheme but with the advantage that they will pay £100 if you start an account. And even £100 if you leave ! Other banks are finding creative ways of tempting your to join them. E.g. HSBC's Account pays £100 when you join and another £35 in a year. Their regular saver account pays 6% on monthly savings of £250. M&S gives £100 voucher and more vouchers for any month in which you pay in £1000. although, unusually, they don't insist on a minimum monthly payment. The Co-op Bank gives £150 and adds a little more for every month in which you pay in £800. They also pay a little cashback on debit card use. Altogether that could mean as much as £200 in the first year. It is difficult to get that much on savings in the current financial climate.

From April 2017 the ISA maximum per annum became £20,000. This can be in cash or shares or transferred between them and you can replace cash ISA amounts you withdraw without it taking you beyond your maximum allowance

ISA confusion. In April 2017 ISA's became even more confusing. As well as cash ISAs some folks can use your annual allowance on a Help to Buy ISA or a Lifetime ISA (LISA) but with strict limits on ages and whether it is for a first time buyer fund or for retirement after 60. Skipton BS is paying 2.01% on 5 year ISAs and accepts transfers in. So, for those getting miserable rates it might be worth transferring some. e.g. my bank pays 0.35% for an instant access ISA. Hardly worth the trouble.

You can only get a new ISA from ONE provider each year but if you have existing cash ISAs you can transfer in funds from different years from different providers. So if you opened a cash ISA with one provider last year, you don't need to stick with it for this year's cash ISA, you can choose whoever is the top payer - if you can find one!

But, for those who can afford it whilst working, the biggest give-away by the government is the SIPP scheme, which adds up to 45% of what is saved in a SIPP from the taxpayer. So, in theory, some wealthy employee who could put £40,000 a year into their investment pension pot would actually be adding £58,000 every year. We can all dream.

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