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Tax free savings: What are your options?

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If you earn over £9,440 (current threshold for 2013/14) per financial year, you have to start paying tax on income. While this is most commonly for your salary, it also includes any interest earned on savings.

In order for your savings to generate as much as possible, it’s important to take advantage of tax free savings. If you’re unsure how to protect your earnings from the tax man, here is a guide to your options.

Cash ISAs

Everyone over the age of 16 in the UK is entitled to save up to £5,760 per year in a cash ISA without paying a penny in interest. If you’ve already got an ISA, you are able to transfer the money without losing the tax-free benefits. Also, contrary to popular belief, as long as you have an easy access or no notice ISA, you should be able to make withdrawals without losing your benefit too.

Even if you are able to make withdrawals, it’s worth remembering the allowance as you could end up missing out. Let’s say you’ve deposited £5,000 into the account, but you decide to withdraw £3,000, then want to put it back. You will still only be able to pay in £760 until the next tax year.

Just like standard savings accounts, different cash ISAs have different interest rates and benefits, so it’s still important to compare what’s available.

childrens savings

Stocks & Shares ISAs

The total ISA allowance is actually £11,520, but only half of that can be saved as cash, the other half is made up of stocks and shares. You can invest all of your allowance as stocks and share if you’d prefer, but only a maximum of £5,260 as cash.

This is slightly more complicated than a cash ISA, but it still has tax-free benefits, just not to the same extent. The dividends on shares are paid with 10% deducted, so a stocks and shares ISA isn’t completely tax free. However, any profits aren’t subject to capital gains tax and despite paying 10% tax on income from dividends, it’s a lot less than the 20%-45% usually paid.

Junior ISAs

Since 2011, Child Trust Funds have no longer been offered to children under the age of 18. Instead, you can apply for a Junior ISA. They differ from standard ISAs because the allowance is just £3,720 – which again can be split into cash and stocks and shares.


If you win the lottery, you don’t have to pay tax. Sounds pretty jammy, but it’s true. You could become a multi-millionaire overnight and not even have to worry about paying the tax man. The same goes for if you win a bet – it doesn’t matter how big or small – winnings simply aren’t subject to tax.

Premium Bonds by National Savings & Investments is another great example of non-taxable winnings. The minimum investment is £100, but instead of earning interest on your savings, it’s clubbed together to fund a £1 million prize draw every month. Although the jackpot is £1m, there’s also the chance to win anywhere between £25 and £100,000.



About Jemma Porter

About Jemma Porter

Jemma Porter is an experienced content creator who has written for a number of online publications. A self-confessed penny pincher; she's often found seeking out the best personal finance deals.

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