Make sure you don’t pay more tax than you need to by making the most of tax-free savings and investments for you and your children or grandchildren.
Individual Savings Accounts (ISAs)
If you save with a Cash ISA, set up a reminder for when the introductory rate ends and shop around.
ISAs are tax-efficient savings and investment accounts.
You can use them to save cash or invest in stocks and shares.
You can pay your whole allowance of £20,000 (for 2024/25) into a Stocks and shares ISA, a Cash ISA or any combination of these.
You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax.
Lifetime ISA
The Lifetime ISA is a longer-term tax-free savings account that will let you save up to £4,000 per year and get a government bonus of 25% (up to £1,000). As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within a Lifetime ISA.
It’s designed for first-time buyers between the ages of 18 and 40 to use towards a deposit for their first home or towards future retirement savings once they hit 60 years of age.
Find out more in our guide Lifetime ISAs – how they work
Flexible ISAs
Some ISA providers offer a flexible facility. This lets you withdraw and replace money from your ISA within the same tax year, without affecting your annual ISA allowance.
Not all ISAs let you do this, so check with your ISA provider. This flexibility is currently not available for Junior ISAs or Lifetime ISAs.
Don’t forget ISA transfers are still required to move money from previous years’ ISA subscriptions
Innovative Finance ISA
An innovative finance ISA (IFISA) lets you use your tax free ISA allowance while investing in peer to peer (P2P) lending. They work by lending your money to borrowers and in return you receive interest based on the length of time and the risk of your investment.
Find out more in our guide Peer to peer lending: what you need to know
UK ISA
The UK ISA is a new type of investment ISA, announced by the government in March 2024. It’s not available yet, but is currently planned to:
- have an ISA allowance of £25,000 (£5,000 more than the standard allowance)
- allow you to invest – such as in stocks and shares – rather than cash savings
- use any money you invest to pay for UK growth projects.
We’ll update this guide when more information and a launch date has been announced.
Finding the right account
Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.
Comparison websites won’t all give you the same results, so it might be a good idea to use more than one site before deciding.
It’s also important to do some research into the type of product and features you need before making a purchase or changing provider.
The following websites are a good place to start in your hunt for a savings account:
Which?
MoneySavingExpert
Moneyfacts – Best ISA rates
Moneyfacts – Best easy access savings
Junior ISAs
Junior ISAs are a great way to save tax-efficiently for your children.
Family and friends can put up to £9,000 into the account on behalf of the child in the 2024/25 tax year.
There’s no Income Tax or Capital Gains Tax to pay on the interest or investment gains.
Junior ISAs are available to any child under 18 living in the UK who either hasn't got a Child Trust Fund, or wants to transfer their account over. For example, to get a better interest rate.
For more information on how to get started, read our guide Junior ISAs
Child Trust Funds
The scheme is now closed for new applications.
But if your child was born between 1 September 2002 and 2 January 2011, they’re likely to have had a Child Trust Fund opened for them.
If you don’t know the provider you can find a Child Trust Fund at GOV.UKOpens in a new window
These offer tax-efficient savings and came with a one-off starter payment from the government.
Currently, parents and friends can contribute up to £9,000 each year (2024/25 tax year) into a Child Trust Fund.
Parents can also transfer savings from Child Trust Fund accounts to Junior ISAs or into an ‘adult’ ISA when the account matures.
Find out more in our guide Child Trust Funds
National Savings and Investments (NS&I)
Your money is safe with National Savings and Investments (NS&I) because they’re backed by the government.
NS&I offers a range of savings products, some of which are tax free. Find out more in our guide National Savings & Investments (NS&I)
Premium Bonds
Premium Bonds are an investment product issued by National Savings and Investment (NS&I).
Unlike other investments, where you earn interest or a regular dividend income, you are entered into a monthly prize draw where you can win between £25 and £1 million tax free.
Find out more in our guide Premium Bonds
Pension savings
The government encourages you to save for your retirement by giving you tax relief on pension contributions within HMRC’s annual allowance limits.
Depending on the type of pension scheme you have, tax relief either reduces your tax bill or increases the amount paid into your scheme.
Where tax relief increases the amount paid in, you get the relief even if you’re a non-taxpayer.
On top of this, your pension fund grows tax-free.
When you retire, you can usually take up to 25% of your pension pot as a tax-free lump sum under current rules.
Your regular pension income is then taxed along with the rest of your income.
Alternatively, some pension providers allow flexible access to your pension pot with 25% tax free and the balance liable to Income Tax at your marginal tax rate. Check with your pension provider.
Find out more in our guide Tax relief and your pension
Children’s pensions
You can also save tax-efficiently for your child’s future retirement with children’s pensions.
You can save up to £2,880 each tax year with the government automatically topping up any contribution by up to £720 (which is tax relief of 20% on your gross (total) contribution). This means your contribution automatically becomes £3,600 per year, per child.
When your child turns 18 they become the owner of the pension. They can continue to contribute or leave the savings invested. They can't access the pension pot, under current legislation before age 55 years, so pensions aren't suitable as short-term savings vehicles.
When they retire, the child can usually take up to 25% of their pension fund as a tax-free lump sum under current rules.
Their regular pension income is then taxed along with the rest of your income.
Find out more in our guide Saving for your children
Tax-free interest on bank and building society accounts
Most people get a personal savings allowance. This means basic rate taxpayers don’t pay tax on the first £1,000 of savings interest (or the first £500 if you’re a higher rate taxpayer).
See How tax on savings and investments works for more information.
Your Capital Gains Tax (CGT) exemptions
If you sell a property or investment that has increased a lot in value, you might have to pay tax on the ‘gain’ (profit).
This is called Capital Gains Tax.
There are two different rates of CGT – one for property and one for other assets. How much CGT you pay depends on whether you have made a profit, your current tax band and your CGT allowance. The CGT allowance is currently £3,000 for the 2024/25 tax year.
Tax Band after adding the Gain | CGT rate on property | CGT rate on investments |
---|---|---|
Basic Rate taxpayer |
18% |
10% |
Higher or additional rate taxpayer |
28% |
20% |
If you make a loss when you sell, you might be able to deduct this from other gains so that your total gain is lower.
You don’t have to pay Capital Gains Tax on:
- investments held in an ISA
- UK government bonds (also called ‘gilts’), or most corporate bonds
- personal belongings worth £3,000 or less when you sell them
- any profit you make when you sell your main home (in most cases) subject to HMRC’s Private Residence Relief rules.
Because you have a separate Capital Gains Tax Allowance (Annual Exempt Amount) for each tax year, if you can carefully time the sale of your investments you could reduce your overall bill.
Find out more at GOV.UK about Capital Gains TaxOpens in a new window
Do you need tax advice?
A financial adviser might be able to help you arrange things so that you pay less tax on your savings and investments.