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‘I'm retired, with £30k income – do I really need to bother with an Isa?'

Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, My wife and I jointly owned a second property which has recently sold for £195,000. We purchased the property at £150,000, so estimate the capital gain will be on £45,000, less a couple of thousand allowable for the selling expenses, meaning tax of around £6,500 or £3,250 each Our income is around £30,000 a year before tax. This is my state pension, plus £20,000 from a holiday rental we still own with no debts or mortgages. We both have modest private pensions. My wife's pension does not kick in for another three years, but I took my full 25pc tax-free cash three years ago when I reached state pension age, and subsequently invested £50,000 into Premium Bonds for us both. I'm not drawing any income from the private pension, and we don't not have any Isas. We are not in immediate need for any further income day to day, but we would like access to a £10,000-£15,000 when we occasionally visit our son in Australia. Could you please give us some guidance as to how we could organise our pensions and other savings? Is it worth us taking out Isas? Or just leave everything in cash? We are comfortable with locking in savings for a few years, if the rates are worth it. Kind regards, — Mark Dear Mark, I'll cover the tax rules when you sell a second property, before moving on to your wider savings. You're aware I cannot give you advice, but I can point out the options available to you. Tax on second properties Based on your gain figure of £45,000, deducting £3,000 for selling costs leaves a £42,000 gain to split between you both. Assuming no other investment gains for the year, you can both also deduct your annual tax-free allowance of £3,000 from your respective share, leaving a taxable gain of £36,000. Any part of the gain that sits within the basic-rate band for income tax when added to your income will be taxed at 18pc. Gains that sit above the basic rate band (£50,270) when added to your income will be taxed at 24pc. Assuming all or most of the gain will be taxed at 18pc for both of you, I'd agree with your estimated tax bill of around £3,250 each, but it's also worth mentioning the tight deadline when it comes to property sales. Although capital gains tax is due when selling investment like shares should be declared by the usual self-assessment deadlines (the January after the end of the tax year), you must report and pay any tax on residential property sales within 60 days. Planning your cash One technique used in financial planning through retirement is to build a cash flow ladder, or funnel. You've got a good handle on your spending already, so you should be able to map what you need for the next few years. The bottom part of the ladder or funnel is your rainy-day fund in instant access cash, followed by a cash buffer for your Australia trips and other bigger costs that might come up in the next couple of years. Next up, your existing Premium Bonds, which could meet your cash needs for the medium term. Beyond that you've got money you could consider investing, as well as what is already in your private pension(s). You've already mentioned you're happy to lock some cash away – locking in now might protect you against any further cuts to the Bank Rate, but just make sure you shop around for the best interest rate and account for your needs. Premium Bonds Premium Bonds remain very popular, despite recent cuts to the expected prize fund rate and the fact that two thirds of people (14.4 million holders), have never won anything. Being government-backed also adds an important extra layer of protection for the most risk-averse savers. Although chances are low, the more you hold in Premium Bonds, the greater your chance of winning. Your total £50,000 holding split between you puts you both just above the average £23,397 holding across all prize winners for the 12 months to February 2025. While I understand the lure of a tax-free prize, it's worth keeping in mind that you could get a better rate of return in a competitive savings account or cash Isa. Tax allowances to be aware of The personal savings allowance protects many people from paying tax on their savings interest outside of an ISA but has been stuck at current levels since it was introduced in 2016. The allowance currently stands at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Leaving your share of the property sale in cash could mean that you pay tax on your savings, although your wife might be eligible for a further savings allowance of up to £5,000, called the 'starting rate for savings', depending on her income and how much of the holiday rental is attributed to her. Holding more cash in her name could prove tax efficient while she is not drawing on her pension or receiving any other income, provided you can secure a competitive fixed rate. The starting rate for savings could give her up to another £5,000 worth of tax-free interest. Eligibility for the starting rate band depends on other income – such as wages and pensions. Once this tips over £12,570, the £5,000 band reduces by £1 for every £1 of extra income. What to do about Isas While your wife might have a higher tax-free allowance for cash savings until her pension starts, Isas could prove crucial for you both to protect future returns from tax. You can save up to £20,000 a year into these accounts and your returns are protected from income and capital gains tax. You are already holding high levels of cash, so you could consider investing some of your money into a stocks and shares Isa each year, to help protect a chunk of your wealth from inflation over the long term. Going back to the cash flow ladder – this money could build a tax-free fund towards future care costs if required. You should only invest money you won't need for at least five years. You also need to consider your attitude to risk – how you'd feel about the value fluctuating in the short term in the pursuit of higher long-term returns. A multi-asset fund will spread your money across different types of investments and markets if a pure equity fund or tracker would feel too bumpy a ride. Pensions As you have taken your tax-free cash, any other withdrawals from your pension will be taxed as income. Your wife will be able to access her private pension(s) from age 55, rising to 57 from April 6 2028, with up to 25pc of any pot usually payable as a tax-free lump sum. At this point your wife might consider allocating this lump sum to a stocks and shares Isa in her own name (perhaps split over two tax years, depending on the value) to ensure it remains shielded from tax. You should also check her state pension age and forecast, as this will be another valuable income stream, with triple-lock inflation proofing when the time comes. I hope this gives you some food for thought, but if you are unsure on the best course of action for your circumstances then please contact a regulated financial adviser. Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.