Tax efficient savings and investments

If you save or invest money, you'll generally have to pay tax on the interest or income you get, but there are some savings and investments that give you a tax-free return. If you're on a low income, you might not have to pay tax at all.

On this page:

ISAs (Individual Savings Accounts)

ISAs are tax favoured savings and investment accounts. You can use them to save cash, or invest in stocks and shares. The maximum you can put in to an ISA is £15,000 in the tax year 2014 to 2015, and this sum can be split as you wish between one cash ISA and one stocks and shares ISA.

You don't pay any tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. But this does mean that you can't use losses on ISA investments to reduce Capital Gains Tax on profits from investments outside the ISA.

More about ISAs


Junior ISAs

Junior ISAs are long-term tax favoured savings accounts especially for children. They are available to any child under 18, living in the UK, who is not eligible for a Child Trust Fund (CTF) account. Like ISAs, you can use them to save cash or invest in stocks and shares. You can save up to £4,000 in the tax year 2014 to 2015 into a Junior ISA and you won't pay any tax on the interest or dividends. Like Child Trust Funds (CTF) the money can't be taken out of the account until the child is 18.

More about Junior ISAs on GOV.UK website (Opens new window)

More about Child Trust Fund on GOV.UK website (Opens new window)


National Savings & Investments

National Savings & Investments offer a totally safe way of saving and investing money because it's backed by the Treasury.

Tax-free savings and investment products from National Savings & Investments currently include:

  • Cash ISA - for savers aged 16 or over
  • Fixed Interest and Index Linked Savings Certificates - for savers aged seven or over
  • Children's Bonus Bonds - can be invested for five years on behalf of children aged under 16

National Savings & Investments also issue Premium Bonds. If you buy Premium Bonds, you won't get interest, but you can win tax-free prizes.

Current products offered by National Savings & Investments (Opens new window)


Child Trust Fund

If your child was born between 1 September 2002 and 2 January 2011, they could be entitled to a CTF account.

Parents, family and friends can add an amount to the account each year. In the tax year 2014 to 2015 this amount is £4,000.

The money can't be taken out of the account until the child is 18. Neither you, nor your child will pay tax on any income or any gains in the account until then.

More about the Child Trust Fund on GOV.UK website (Opens new window)


Tax-free interest on bank and building society accounts

Banks and building societies usually take tax off interest at the rate of 20% before they pay it to you. But if your taxable income is less than your tax allowances you can register to have your interest paid 'gross' (without tax taken off). If you're under 16, your parent or guardian will have to register for you. You can also claim back tax you've paid on your savings when you didn't need to.

Follow the links below to check the detail and next steps.

Check Personal Allowance rates

Getting tax-free interest or reclaiming tax on your savings and investments


Tax relief on pension savings

The government encourages you to save for your retirement by giving you 'tax relief' on pension contributions. Tax relief reduces your tax bill or increases your pension fund.

When you retire, providing your own pension scheme rules allow, you can usually take up to 25% of your pension fund as a tax-free lump sum. Your regular pension income is then taxed in the same way as the rest of your income.

You can save as much as you like into any number of pensions - and get tax relief on contributions of up to 100% of your earnings each year, subject to an upper 'Annual Allowance'. (Savings above a separate Lifetime Allowance will be subject to tax charges.) Follow the first link below for the detail.

Tax relief on pension contributions


More useful links

Find out about children's individual savings accounts on the GOV.UK site (Opens new window)

Understand the basics of the tax system