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Tax-free savings

When you check out the best rates, remember this is not always what you get. The gross rate is usually advertised but most people receive a net rate - which is after tax has been taken off

If you are a higher-rate taxpayer, you will have to pay additional tax too on your savings, when you fill in your tax form each year.

What tax will I have to pay on my savings?

  • Your savings will be taxed at source - 20 per cent tax will be taken off before you get any interest unless you are a non-taxpayer and have registered to receive your interest gross (without tax deducted). Basic rate taxpayers do not have to pay any more tax. However, if you are a higher rate taxpayer, you'll have to pay extra tax on your savings through your tax return. Income from savings and investments (unless you are investing in them via an ISA, or they are tax-free National Savings products) must be declared on your tax return.

If you are a non-taxpayer you'll need to register to get your interest paid gross. You will need to:

  • Fill in a R85 form, which you can get from your bank or building society, the Inland Revenue Enquiry Centres and Tax Offices, or the booklet IR110 'A guide for people with savings'.

    For more information visit www.inlandrevenue.gov.uk or call the Taxback Helpline on 0845 077 6543.

There are certain savings products which allow you to save without having to pay tax. These include cash-based Individual Savings Account's (ISAs) and certain tax-free National Savings and Investment products.

Cash ISA
Everyone over 16 can open one of these tax-free savings accounts and you can currently invest up to £3,000 during any tax year (6th April-5th April). Even if you are investing for the shorter term you may want to think about a cash ISA because:

  • No tax is deducted.
  • The rates are higher than for many savings accounts.
  • You can often invest as little as £1.
  • You can invest £3,000 in each tax year - so after five years you could have £15,000 of savings safe from the tax man!


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