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Interest Planning for Next Year A LOT of people will have ended up owing tax on savings interest this tax year as a result of the higher interest rates hovering around 4-5% all year meaning you need less savings in order to breach the tax-free levels The easiest way to ensure you won’t need to pay tax on interest is to save in a Cash ISA, although note you may rather use your ISA allowance for investments if this is your preference However, if you do have a substantial amount of cash in a non-ISA savings account, and have not maxed out your ISA allowance for 2024/25 it is not too late to move this to an ISA before your allowance resets Example If you have £30,000 earning 4% in an easy-access savings account, you would earn £1,222 (compounded) in interest over 12 months If you are a basic rate tax payer, you’d pay tax on the £222 at a rate of 20% meaning you’d owe HMRC £44.40 If you are a higher rate tax payer, you’d pay tax on £722 at a rate of 40% meaning you’d owe HMRC £288.80 If you had only used £5,000 of your ISA allowance so far, you’d have £15,000 left Therefore, you could move £15,000 of these savings to an easy-access Cash ISA and even if the interest rate was the same would then have: £15,000 Easy Access @ 4% = £611 interest over a year £15,000 Cash ISA @ 4% = £611 interest over a year
The basic rate tax payer would now owe no tax and the higher rate tax payer would owe tax on £111 at 40% being £44.40 (£240 less!) This example uses fictional numbers for informational purposes and does not constitute tax advice but instead demonstrates how tax works on savings interest Top Paying Cash ISAs Trading 212 is an investment platform that offers a Cash ISA as a loss-leader product and has been the highest-paying for most of 2024/25 I have used them for investing for years and would recommend them. I am also partnered with Trading 212 and if you open an investing account with them and deposit £1 you will also earn up to £100 in free shares!
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