Where should I save a lump sum?
I moved back into my parents’ house in lockdown, and have saved £10,000. I have a Help to Buy Isa, but where should I put my lump sum? I have looked into Premium Bonds, which are risk free but offer minimal growth, and stocks and shares Isas, which can have a good return, but only if invested for years. I may want to buy a house within the next three years. What should I do?
AS, via email
Interest rates are at historic lows so cash savings now struggle to beat inflation. Paul Fazackerley of Furnley House, a financial adviser, said tax-free investing and saving were both worth considering. Premium Bonds offer the chance to win tax-free prizes of between £25 and £1 million, and account holders can withdraw cash at any time.
“Premium Bonds are great fun, but provide no guaranteed returns,” he said. “However, in a climate of low interest rates, you may feel that the chance to win a cash prize outweighs the benefits of a small amount of interest paid.”
Mr Fazackerley said investing could also be an option. “If it is more likely it will take you five, not three years to buy your first home, then low-risk investing should be a consideration,” he said. Mr Fazackerley suggested using ready-made portfolios from major fund shops suitable for cautious investors.
Can my wife inherit my Isa?
My wife and I are in our 80s and have Isas in our own names. What will happen when one of us passes away? Does the tax-free allowance transfer to the surviving partner?
PD, via email
Isas can be transferred to a spouse or civil partner after death and will continue to enjoy their tax-free status. The recipient will be given an “additional permitted subscription” to their own Isa, which is equivalent to the balances held in the deceased’s accounts.
However, it is important to remember while Isa savings are tax-free during your lifetime, they are not free from inheritance tax (IHT) after death. In your case, no IHT would be due as the surviving partner would benefit from the spousal exemption, which allows assets to be transferred from a spouse or civil partner. However, if someone else was a beneficiary of your estate this could be subject to IHT.
