Reduce your savings tax

Ensure that your tax payments are as low as possible before you begin paying into a savings account.

Here are some of the ways that you can do this

Pay tax only if you need to

You will not need to pay tax on your savings if you’re, er, a non-tax payer, but unless you tell this to your bank, they will continue to deduct tax from the interest they pay you. To let them know your status, fill out a Form R85 and send it to your bank, then they will pay you tax free interest on your savings. This is much more convenient than filling out a tax return to get the tax back.

In the same vein, this also applies if you have a spouse who is a non-taxpayer. Just open an account in their name and ask them to complete Form R85.

Cash ISAs

There is additional information about these on the site. If you do not manage to take advantage of your full annual ISA allowance for savings and investments, it’s a good idea to put your cash in a Cash ISA as the rates are normally better than those paid by Instant Access accounts.

Offset mortgages or current accounts

These accounts use your mortgage as a huge overdraft and your savings are offset against it. The interest that you would have acquired on your savings is set as the same interest rate on your mortgage. It’s like getting tax-free interest at the mortgage rate and it’s better than an ISA as it offers a higher rate of interest. It also means that you can use your yearly ISA allowance to invest in the stock market.

The drawback is that you need to exercise some self control in your spending and make sure that you don’t borrow against your overdraft so to do this you need to make sure you create a plan to reduce the mortgage.

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