I want to shield some cash from tax, but it exceeds the Isa allowance. What are my options?

I recently inherited £35,000 and I’m not sure how to protect it from tax.

I know I want to put most of it into Isa shares, but it’s more than the current £20,000 allowance.

I don’t want to put my money into risky investments like VCTs or EIS.

What are some of my other options?

Shield: A Shares Isa is a good way to protect your money from tax

Angharad Carrick, from This Is Money says: You are right to consider your options, especially as the end of the tax year approaches.

You don’t have to pay any inheritance tax on the money as it falls below the £325,000 threshold, with 40 per cent normally charged on any amount above that.

A share Isa is a great way to protect this money from tax but as you say the current Isa fee is £20,000 a year.

While you can have more than one ISA for stocks and shares, you can only contribute money to one ISA for stocks and shares each tax year.

> Read our full guide to stocks and stocks Isas

This means that you can open a new share of Isa every year. However, you cannot put money into your old shares and Isas shares if you open a new one.

However, as you have three weeks left, you still have time to open an Isa and put £20,000 in before the April 5 deadline, although you’ll need to be quick. Then you can put the remaining £15,000 in in the new tax year.

We asked two investment and tax experts what the best options are to shield your inheritance from the tax authorities.

Jason Hollands, managing director of investment platform Bestinvest answers: Isas and pension are the two main pillars of tax-efficient savings in the UK.

And the good news here is that post-budget retirement plans are still deductible at your marginal income tax rate — for now — despite repeated rumors of a review. The downside, however, is that pensions are currently only accessible from the age of 55 (rising to 57 from 2028).

Of course you will soon have a new Isa allowance that you can withdraw in a few weeks, from April 6. You can comfortably shield your £35,000 from tax by using both sets of allowances and Isas is of course very flexible as there are no restrictions on withdrawals.

You don’t even have to invest the money directly in your Isa, you can initially keep all or part of the credit in cash and invest it later or in phases.

When it comes to saving, you should never let the tax tail wag the investment dog. VCTs and EIS may appeal to the right person, but certainly not to everyone.

Angharad Carrick says: You are right to be cautious about investing through VCT and EIS schemes, especially if you are new to investing.

Venture capital trusts allow investors to buy shares in their portfolio of early-stage, usually private, companies. In return for taking on this higher level of risk, they offer a tasty 30 percent tax break and tax-free dividends, along with an annual investment cap of £200,000.

With a reduction in the threshold for paying the top-up income tax rate of 45 per cent in April, as well as reductions in the £12,300 tax-free annual capital gains allowance (to £6,000) and in the £2,000 tax-free dividend allowance (to £1,000) , more investors could be looking at VCTs.

But advisers say you should never invest solely for a tax benefit and there is some concern about the effect all the money pouring into VCTs in recent years has had on valuations.

You can consider putting some of the money into your pension if you are not yet retired

You can consider putting some of the money into your pension if you are not yet retired

David Gibb, chartered financial planner at Quilter replies: Shares and shares of Isas are a great way to protect your assets against the tax authorities. The current fee of £20,000 is generous and you can put a good chunk of your legacy into it for the long haul.

It is important to remember that investing is for the long term, at least five years, to get the greatest growth potential and absorb any volatility in the markets.

It’s also worth determining what you want to do with the money, as this may dictate where you put it.

If you don’t need it for anything in particular and you’re willing to wait potentially many years to access it, a retirement may be the best place for some or all of the money

If you don’t need it for anything in particular and you’re happy to wait possibly many years to access it, a retirement may be the best place for some or all of the money. You benefit from an increase in the government’s tax credit, and all investment growth and dividends are also protected from tax.

The recent budget also increased the annual amount you can save for retirement to £60,000, while removing the lifetime allowance, so you should have plenty of room to put it in there and take advantage of your eventual retirement.

If the money is needed faster, it’s worth remembering that you also have a personal savings deduction of £1,000 if you’re a base taxpayer or £500 for higher taxpayers. This is the amount of interest you can receive before you start paying income tax on it.

It should be noted, however, that cash rates are still vastly behind inflation and so should only be used for money needed in emergencies or at short notice.

There’s also the £1,000 per annum dividend allowance, which will be reduced to £500 in 2024/25, meaning if you invest £20,000 in an Isa and then £15,000 out of an Isa, any interest or dividends from the £15,000 will not would be paid. be taxed, and then the money can be moved to an Isa the next tax year.

Finally, if applicable, you can also use the money to supplement your partner’s possible Isa allowance or to contribute to the Junior Isa or Junior Pension of a (grand)child.

While you are essentially handing the money over to them, it will also be protected from tax and you can also leave your loved ones an inheritance and possibly start a saving habit in young relatives.

Compare the best DIY investment platforms and stocks Isa

1678801622 257 Hargreaves Lansdown slashes fees on Junior and Lifetime Isas

Online investing is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investment platform, stock Isa or a general investment account, the range of options seems overwhelming.

Each provider has a slightly different offering, charging more or less fees for trading or holding stocks and giving access to a different range of stocks, funds, and mutual funds.

When weighing up the right one for you, it’s important to look at the service it offers, along with handling fees and transaction fees, plus any other additional fees.

To help you compare the best investment accounts, we’ve put together the facts and put together a comprehensive guide to choosing the best and cheapest investment account for you.

We highlight the key players in the table below, but we encourage you to do your own research and consider the points in our full guide linked here.

>> This is Money’s full guide to the best investment platforms and ISAs

The platforms below have been independently selected by This is Money’s specialist journalists. If you open an account through links marked with an asterisk, This is Money earns an affiliate commission. We will not allow this to affect our editorial independence.

DIY INVESTMENT PLATFORMS AND STOCKS & STOCKS ISAS
Management fees Loads notes Fund trading Default share, trust, ETF trading Invest regularly Dividend reinvestment
AJ call* 0.25% Max £3.50 per month for stocks, trusts, ETFs. £1.50 £9.95 £1.50 € 1.50 each More detail
Bestinvest* 0.40% (0.2% for pre-built portfolios) Account fees reduced to 0.2% for turnkey investments Free £4.95 Free for funds Free for income funds More detail
Charles Stanley directly 0.35% No share platform fees on any transaction in that month and an annual cap of £240 Free £11.50 na na More detail
Fidelity* 0.35% on funds £45 fee up to £7,500. Max £45 per annum for stocks, trusts, ETFs Free £10 Free funds £1.50 shares, relies on ETFs £1.50 More detail
Hargreaves Lansdown* 0.45% Capped at £45 for stocks, trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More detail
Interactive investor* £9.99 per month, or £4.99 under £30,000, £12.99 for Sipp £5.99 a month back in free trade credit (does not apply to a £4.99 subscription) £5.99 £5.99 Free £0.99 More detail
iWeb £100 one-off £5 £5 na 2%, up to £5 More detail
Etoro* Free but no Isa or Sipp Investment account offers stocks and ETFs. Beware of high risk CFDs on a trading account Not available Free na na More detail
Free trade* Free for Basic account, £4.99 per month for Standard with Isa Freetrade Plus with more investment and Sipp is £9.99/month inc. Is a fee No funds Free na na More detail
Forefront 0.15% Only Vanguard Funds Free Free Vanguard ETFs only Free na More detail
(Source: ThisisMoney.co.uk Jan 2023. Administration fees may be levied monthly or quarterly

Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.