I am a 22-year-old commercial airline pilot living in the UK with an annual income between £60,000 and £70,000. I currently have no debt and live with my parents, which allows me to keep my monthly outgoings very low. Between my car expenses, food, phone bill, and gym membership, I spend only about £500 a month.
Because of my low cost of living, I am able to save and invest approximately £46,000 per year. I have already maxed out my annual ISA allowance by investing in the S&P 500. I am hesitant to contribute to a workplace pension because I plan on retiring early and worry about the accessibility of those funds.
I am looking for advice on what to do with the remaining £26,000 of my annual savings. Should I put it into a general investment account and simply accept the capital gains tax, or are there better alternatives? My primary goal is to be able to purchase my own home within the next few years.
I've Maxed Out My ISA Allowance – Now What?
byu/Usual_Lion_5837 ininvesting
Posted by Usual_Lion_5837
4 Comments
if you want the money in the next few years just put it in a hysa and budget accordingly
If you are planning to purchase a home in the next few years, put the £26k in premium bonds. They are tax free and should produce about 3.6% annually.
Have you maxed it out for the next tax year, which started today? Or did you max out last years?
Either way if you want to continue to invest just pen a regular trading account and accept you’ll pay capital gains on the profits. Still better than a regular savings account.
Taxes suck. They just do. But avoiding making money just because you’re going to have to pay tax on that money is stupid–the money you pay in taxes is less than the money you’ve made.
Capital gains taxes are only paid if you make money. It’s not like they just randomly hit you with a tax bill because you invested. You pay taxes only on money you’ve made.
You’re an airline pilot. Do you quit your job because you pay income taxes? No. Of course not. You realize that you’re going to have to make an income to live, and that one of the things you have to do in order to do that is to pay taxes on that income.
Think of investing the same way. Obviously you should *absolutely* maximize any tax-free investing capabilities you have available to you. But if you have money left over after that and you want to invest it? Don’t let taxes stop you.
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BTW there might be reasons to invest as much as you can right now, and then buy your house–not with the proceeds of your investments, but taking out a loan. Depending on interest rates where you live, it might be better to take a loan and pay interest if the money in your investments makes a higher return. For example, I just (sadly) had to replace my car. I was thinking of paying cash for the car based on proceeds from a stock sale. But the dealer was offering 1.49% APR on a certified pre-owned whereas my broker is giving 3.35% in money market fund–and I can do even better investing. So taking a loan on a car made sense rather than using that cash to pay up front.