How to make savings as tax efficient as possible

[Platoo]

Last year I inherited a decent sum of money, and I've also recently moved into the high rate tax bracket which means I'll start paying tax on my savings interest. I currently have £50k in Premium Bonds, £20k in an ISA (2022/23 FY) and will put another £20k in a ISA at the end of this week to max out my 2023/24 allowance. I also have £10k invested through Vanguard.

I have another £100k currently in a range of fixed rate and easy access savings accounts, all paying between about 3-4.25%.

I've estimated that my interest on these accounts could be about 3.5k for this tax year, which would mean a rather painful £1.5k(ish) in tax.

Are there any other tax savings I can make? I will need most of the money in 2-3 years time when I move house, so not keen on putting absolutely all of it into stocks and shares or my pension.

Do you have a LISA?

I don't, but I think a LISA counts towards an ISA allowance?

There's no tax on isa interest or premium bond prizes.

Offshore bonds. Not used them myself but im aware of some who use them for tax purposes.

General investment account - so that you can schedule your capital gains sales to within tax windows and within the allowances.

Also, if you are prepared to accept more risk, the real issue is the gross return rate you are getting…. Should be looking at 6 to 9%, or if you historically wend for a Fundsmith style fund, 18% on average.

Tax wrappers are obviously limited - but depending on your age, you might have access to a SIpp in your timescale, and could look at offsetting income tax by maxing out your contributions in and live off some of your savings and a basic salary of 12.5k.

Can you increase your pension contributions (as salary sacrifice) to take you under the higher rate tax threshold?

Thanks everyone, sounds like investing is the way to go then. Salary sacrifice won't bring my salary below the higher threshold.

Can you put extra into your workplace pension to bring you back below the threshold?

I wouldn't risk the lump sum in stock market investments if you need most of the money in 2-3 years. There is just too much volatility there.

If you are putting £20K in cash ISA's each year, your tax liability will be reducing year on year, until the 6th year when it will be nil on the savings, and a shorter time frame than that if you use some of the lump sum before then.

The tax liability across the 5yr period will be roughly £4,500 in total, assuming 4% return and putting £20K in a cash ISA each year. That's approx 21% of the £22K in interest earned on £100K savings in 5 years.

Bear in mind that the FTSE 100 dropped 9% in 2022, and S&P 500 dropped 23%. That could be most of the interest on savings in 5 years wiped out in one year on £100K in stocks and shares.

I wouldn't risk it over that time frame.

Good advice, thank you - the stock market does scare me.