Is there any way of saving tax-free?
Some savings are free from income tax, these are listed below:
Individual Savings Accounts (‘ISA’) income – there is more information about ISAs on our main LITRG website.
National Savings and Investments (‘NS&I’) – interest on Savings Certificates, Children’s Bonds and Children’s Bonus Bonds. Note that Children’s Bonds and Bonus Bonds are no longer available for purchase but any income arising on existing bonds remains tax – free.
Insurance policies or investment bonds – withdrawal tax free up to 5% of the amount originally invested
Save As You Earn schemes – interest and terminal bonuses
Income from certain UK Government stocks or gilts, where the person receiving the money is not resident in the UK
For certain individuals who are not domiciled in the UK, as long as income from overseas is not brought into the UK, it may be treated as tax-free in the UK.
If you are not resident and/or domiciled in the UK and you have significant savings then we recommend you get professional tax advice.
You may also find the following tips helpful in organising your savings:
Tax Tip 1
If you are married or in a civil partnership, it may be more tax efficient to have a joint bank or building society account. Even if the capital is in unequal shares, HMRC normally tax the income as being received equally by your spouse or civil partner and yourself. Of course, there are other (non-tax) implications to having joint investments.
Tax Tip 2
Beware of interest accounts, for example, bonds, that roll up and credit your interest in one go at the end of the period. These types of account are usually for a fixed length of time that can be more than one year. These could pay a large amount of interest in an individual tax year, pushing your income into the bracket where tax (or more tax) is payable.
Tax Tip 3
Because tax may be due when your dividend income exceeds your dividend allowance and your interest income exceeds your personal savings allowance, you may wish to consider the type of assets that you invest in. Alternatively you could instead invest in tax-free savings products such as National Savings Certificates, Premium Bonds or cash and shares ISAs. These are investment decisions and you should consider your overall position rather than simply your tax position.