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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
With people paying rising amounts of tax on savings, the importance of tax planning has never been higher. Over-65s are expected to pay £2.5 billion in tax on savings interest in the 2025/26 tax year, according to a freedom of information request from Paragon Bank. That’s an increase of 215% in just three years.
Frozen tax thresholds, which are now frozen even further until 2030/31, already mean that more people, including a million pensioners, are now paying higher or additional-rate tax. This means that more will be paying capital gains tax at the higher rate of 24%.
And from April 2027, the rate of tax on savings income will increase by 2%, to 22% for basic-rate taxpayers and 42% for higher-rate taxpayers.
But a higher tax bill is not inevitable. Here are 20 expert-approved strategies to help you cut your tax bill today.
Make the most of your personal savings allowance, says Sarah Coles, head of personal finance at Hargreaves Lansdown. “The personal savings allowance means the first chunk of interest on your savings may be tax-free. Basic rate taxpayers can receive up to £1,000 in interest from savings accounts each year without paying tax, while higher-rate taxpayers can receive up to £500. Additional-rate taxpayers don’t have this allowance.”
Laura Suter, personal finance director at AJ Bell, suggests: “If your partner pays a lower rate of income tax than you, it can be worth moving taxable savings into their name, so you pay the tax at a lower rate. For example, any savings exceeding your personal savings allowance would face a lower rate of tax if you move it.”
Alice Haine, personal finance analyst at Best Invest, says: “Taking advantage of the tax-free benefits a cash ISA offers is a no-brainer for those with sizeable savings pots sitting in a regular bank or building society account. Individuals become liable for tax on their cash savings at their marginal rate once they breach their personal savings allowance so moving money into a cash ISA – where it can grow free of tax on income – is a simple way to reduce tax on savings.”
From April 2027, the annual cash ISA allowance will reduce to £12,000 for under-65s, with £8,000 of the full £20,000 allowance reserved for stocks and shares. Over-65s will still have the full £20,000 allowance to keep in cash if they wish.
Sarah Coles says: “If you earn less than the personal allowance from wages and pensions, you also have the starting rate for savings, so the first £5,000 of interest on your savings is tax free. You get the personal savings allowance on top of that. It means you can make £12,570 from wages [or pensions], and £6,000 in savings interest without paying any tax. However, for every £1 of non-savings income over your personal allowance, you lose £1 of your starting savings allowance, so if you earn £17,570 you lose all the allowance.”
Alice Haine suggests that if you’re married or in a civil partnership and one of you is eligible for the starter rate for savings, consider switching cash savings to the eligible partner.
The starting rate for savings and the personal savings allowance can be ‘stacked’ with other allowances to give you an impressive tax-free income.
If you have used your ISA allowance and you’re paying tax on savings interest, you might consider Premium Bonds as prizes are paid tax-free. Just bear in mind prizes aren’t guaranteed and you might not win anything – in fact, most Premium Bond holders have never won a prize. The more bonds you buy, the greater your chance of winning. The average holding is £5,406, according to AJ Bell, but the average holding of people that have won in the last 12 months is £23,397. You can pay up to £50,000 into Premium Bonds.
Gilts are loans to the UK government that pay a ‘coupon’ in return for your investment. The interest is liable for income tax, but any gain in value is exempt from capital gains tax, so they can provide a tax-effective alternative to savings accounts.
Consider reducing your pension withdrawals if you’re breaching the higher-rate tax threshold (£50,270 in England and Wales). Not only will you start paying more tax on income over the threshold, your personal savings allowance for savings interest will fall from £1,000 to £500. If you’re likely to pay capital gains tax, the rate will jump from 18% to 24% once you become a higher rate taxpayer too.
If you live in Scotland, Scottish higher rate tax begins at £43,663 (with an advanced rate from £75,001 to £125,140) but it’s still the England and Wales threshold that affects your personal savings allowance and capital gains tax rates.
If you have money saved in ISAs, you can use that to top up your income, without increasing your tax bill.
If you have used up your own ISA allowance and you’re paying tax on savings interest, you could consider paying into a child’s junior ISA on their behalf. Children have an ISA allowance worth £9,000 a year, gains are tax-free and they won’t be able to touch their money until they are 18. In addition to helping them build a nest egg, giving money to grandchildren can also be a helpful way of reducing a potential inheritance tax bill.
If you are close to breaching your personal savings allowance for the current tax year, consider opening an account that pays interest annually or on maturity. That way, interest will count towards the next year's tax allowances instead (or even the following year, if it’s a fixed-rate bond longer than 12 months that only pays interest on maturity). This can work particularly well if you expect your taxable income to drop from higher-rate to basic-rate next year, which would mean you’ll have a bigger personal savings account next year. Or if you expect your income to drop low enough to make you eligible for the starter rate for savings.
If you still have a mortgage, using your savings to ‘offset’ your debt can be more tax-efficient than a standard savings account. Instead of earning interest (which is taxable), your savings are used to reduce the mortgage balance you are charged interest on. Effectively, you earn a tax-free 'return' equal to your mortgage rate. With mortgage rates typically higher than savings rates, this can save you significant money.
Tax-Exempt Savings Plans (TESPs) offered by Friendly Societies (mutually owned society) are a little-known allowance that can sit alongside your ISAs. The limits are much lower, usually allowing you to save up to £25 a month or £270 a year, but there’s no income tax or capital gains tax. There’s usually a guaranteed minimum return at maturity, plus bonuses which are not guaranteed. They generally require a commitment of 10 years, so you should consider whether they are useful to you and whether the potential return compares well with other forms of savings or investments.
ISAs aren’t just for cash – you can use your total £20,000 allowance to shelter stock market-linked investments like shares and mutual funds from tax on dividends and capital gains. From April 2027, under-65s will have to invest in at least £8,000 of stocks and shares to get the full £20,000 ISA allowance.
The ‘use it or lose it’ capital gains tax allowance has fallen dramatically in recent years – from £12,300 a year in 2020/21 to just £3,000 in 2024/5 and 2025/26. You can make use of this allowance each year by selling investments and taking gains up to the value of the allowance without paying any CGT. This can be done by cashing in investments, or reinvesting gains in alternative options. Ian Futcher, financial planner at Quilter, says: “Even with the allowance sharply reduced, using it annually prevents gains snowballing over time, which avoids facing a much bigger tax bill when you eventually sell.”
You can pay cash into a stocks and shares ISA and use that money to buy investments, or you may be able toessentially transfer existing holdings, so long as you have enough ISA allowance remaining. Futcher explains: “If your investments sit outside an ISA, consider ‘Bed and ISA’,which is when you sell and immediately rebuy the same assets inside your ISA, crystallising any gains within allowances and sheltering future growth from tax.” This can be a helpful way of using your CGT allowance each year (see point 14 above).
Laura Suter says: “If you have investments that generate an income and they aren’t in your ISA or pension, you could be paying dividend tax on money you don’t need to. Work out the biggest income payers and move them into your stocks and shares ISA – where you’ll pay no dividend tax. Just make sure you don’t exceed your £20,000 ISA allowance.” The dividend allowance is currently £500 a year (down from £5,000 in 2017/18).
“Spreading sales over two tax years means you can use two sets of allowances, which is particularly useful for larger disposals that could otherwise tip you into a higher tax band,” says Ian Futcher.
Alice Haine says: “Married couples have the option of using two sets of dividend allowances, two annual capital gains exemptions and two ISAs, by taking advantage of ‘interspousal transfers’. This involves shifting investments and cash to a spouse – a move not considered a taxable event. For investments, this effectively involves sending an instruction to the broker or platform that holds your investments. Even where tax cannot be completely eliminated by shifting shares and funds around, moving investments to a spouse who is subject to a lower tax band, can still help reduce a family tax bill.”
Ian Futcher says: “If you’ve sold investments at a loss, make sure you report them to HMRC, as they can be carried forward to offset future gains and cut your CGT.”
A pension is a great place to invest money that will otherwise be taxed and you can carry on making contributions until you’re 75. Although it will be taxable when you make withdrawals, it will grow tax-free and you’ll get tax relief on contributions. If you’re still earning in some capacity, you can normally pay 100% of your income into your pension each year –up to £60,000 a year.
The exception is if you have already made a taxable withdrawal, in this case you will have likely triggered the money purchase annual allowance and will only be able to contribute a maximum of £10,000. Non-earners can pay in up to £3,600 a year (£2,880 before basic rate tax relief is applied).
When you come to take money out, be careful of taking a lump sum out of your pension before moving into drawdown or buying an annuity. With a so-called ‘uncrystallised fund pension lump sum’ you’ll only get 25% paid tax free and the rest will be taxed as income – which could land you with a big tax bill. When you do ‘crystallise’ your pension, you’ll be able to take 25% as a tax-free lump sum. If you don’t otherwise need to dip into your pension, consider taking money from tax-free pots like ISAs instead.
You might have heard the saying ‘don’t let the tax tail wag the investment dog’ and it means that tax shouldn’t be the be all and end all of your investment decisions. That said, it makes sense to structure your savings and investments so you don’t pay more tax than you need. It can be a good idea to talk to a financial planner or adviser, especially if you’ve got savings and investments scattered across lots of different pots and you’re worried about tax.
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