Finding the best savings account How to pay less tax on your savings
Make sure you're aware of whether you have to pay tax on the interest you earn from savings
Use your Isa allowance
If you want to minimise the amount of tax you pay on your savings, it makes sense to use up your annual tax-free cash Isa allowance of £5,640.
In an ordinary savings account, basic-rate taxpayers will pay 20% tax on their savings interest and higher-rate taxpayers will pay 40%.
Use your partner's allowance
If your partner pays a lower rate of tax than you, transfer assets into their name. This makes particular sense if one of you is a non-taxpayer, as your taxable income will be lower than your tax allowances, which means you won't have to pay any tax on savings interest. Interest on savings accounts is usually paid after 20% has been deducted by the provider. Higher rate tax payers pay 40% interest.
To get your interest paid tax free, you will need to complete form R85. This is available from banks, building societies, or HM Revenue and Customs website. If you are a non-taxpayer, but have paid tax on your savings, make sure you claim it back. You need form R40 from HM Revenue and Customs (HMRC).
- You can find out more about tax and your savings in our Tax on savings and investments guide.
- Or, for more on saving, see our book Save and Invest.
- For a personalised solution, call our experts on the Money Helpline
