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Tax-free savings

See our round-up of savings products that guarantee you'll pay no tax on your returns.

In this article
When are savings tax-free? Cash Isas Stocks and shares Isas Junior Isas and child trust funds
Lifetime Isas Help to Buy Isas Innovative Finance Isas National Savings & Investments

When are savings tax-free?

Any time you earn income, you may need to pay tax on it - and this includes income from savings interest and investments.

Tax-free saving and investing has been easier since the introduction of the personal savings allowance and dividend allowance in 2016.

But there are also several products available that allow you to grow your money without having to worry about tax at all, even if you exceed the new allowances. 

Below, we explain the accounts that allow you to earn interest on your savings within a tax-free wrapper.

  • Get a head start on your 2021-22 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

Cash Isas

Cash Isas are completely free of income tax. Anyone over 16 and living in the UK can open one. 

In 2022-23, you can pay up to £20,000 into a cash Isa. This is unchanged from 2021-22.

You can also switch previous years' Isas to new Isa providers without affecting your current year's allowance. It is possible to transfer money held in a cash Isa into a stocks and shares Isa and vice versa. 


Stocks and shares Isas

The same subscription limit applies to stocks and shares Isas - £20,000 in 2022-23.

You have to be at least 18-years-old to invest in a stocks and shares Isa.

A stocks and shares Isa allows you to put money in a range of different investments. While you may be able to generate higher returns than in a cash Isa, your money is at risk and your interest rate is not guaranteed.

You can choose to invest the whole of your allowance into a stocks and shares Isa, put your full allowance into a cash Isa, or divide it between the two.

Find out more: stocks and shares Isas explained – find out more about investing in this tax-free wrapper.

Junior Isas and child trust funds

If you’re saving on behalf of a child under 18, there’s a version of the Isa for minors, the Junior Isa.

There are two varieties. In a cash Isa, the deposit and interest rate is guaranteed and your money is safeguarded.

Alternatively, some Junior Isas allow investments, which puts your money at risk, but can potentially generate higher returns in the stock markets.

As with Isas, any interest or investment returns from money you put in the Isa is tax-free. The child is free to access the money in full when they turn 18, and they can also transfer their money into a cash Isa when they turn 16.

In 2022-23, you can deposit up to £9,000 - this is the same as it was in 2021-22. 

Child Trust Funds (CTFs)

Child trust funds were savings and investment schemes for children that were received a boost from the government. Like Junior Isas, gains are tax-free and they can be rolled over into an Isa when they mature on your child’s 18th birthday.

Since the introduction of the Junior Isa, it hasn't been possible to open a Child Trust Fund, but lots of people still have them.

Since 2010 the government top-ups have ceased, but if your children have them you can keep saving into them, or convert them into a Junior Isa.

There are two types of child trust funds: cash child trust funds, which are completely tax-free, and share-based child trust funds which can be used to invest in funds and other investments.

As with Junior Isas, you can pay in up to £9,000 in the 2022-23 tax year.

Lifetime Isas

The lifetime Isa launched in April 2017. Investors can save up to £4,000 a year. The government then adds a 25% bonus to your savings annually, effectively adding £1 for each £4 invested. 

Lifetime Isas are only available to under-40s, and there are penalties if you access the money before 60, unless you’re using the money to buy your first home.

If you access the money at retirement, then it’s a bit like a pension, except when you take your money out it’ll always be tax-free. The downside is that if you’re a higher-rate taxpayer, you won’t get the same tax boost on your money when you first save it.

You can opt for a cash or an investment version.

Be aware that if you withdraw the cash before 60, and you're not doing so to buy a property, you will be penalised. £1 of every £4 will be taken by HMRC when you withdraw your money, which will leave you in a worse position when you started. 

For example, say you opened an account with £400. You'd be eligible for a £100 bonus, giving you £500. But if you withdrew that £500, HMRC would penalise you £125 - leaving you with just £375. 

Help to Buy Isas

Help-to-Buy Isas are now closed to new savers, but if you already have an account you can continue saving as normal.

This kind of account works like a cash Isa, but the government will top up your savings if you ultimately use them to put a deposit on your first home. You can save up to £200 a month, plus an initial £1,000 lump sum when you open the account.

The bonus is worth £1 for every £4 you save, with a maximum top-up of £3,000. You'll get the bonus when you buy a property. 

If you need to withdraw the money for something other than a property purchase you won't be penalised, but you won't get the bonus either. 

Innovative Finance Isas

The innovative finance Isa allows you to invest in peer-to-peer loans and crowdfunding schemes while benefiting from the traditional Isa’s tax breaks. You can use some or all of your annual allowance, providing you haven’t used it elsewhere.

Find out more: What is an Isa? - understand the different ways you can save and invest tax-free

National Savings & Investments

National Savings & Investments offers several tax-free products, including a cash Isa, savings certificates (fixed-interest and index-linked) and children's bonus bonds.

Winnings on NS&I premium bonds are also tax-free. If you invest in premium bonds, you can choose to take your winnings each month, or re-invest them to buy more bonds.