As the tax year-end approaches, now is the perfect time to ensure your ISA savings are working as hard as possible for you. With various tax-efficient savings options available, reviewing your financial strategy before the 5th April 2025 deadline could help you make the most of your allowances and avoid missing key opportunities.

ISA Allowance

One of the simplest ways to save tax-efficiently is by using an Individual Savings Account (ISA). The annual ISA allowance for 2024/25 is £20,000, and any money placed into an ISA is shielded from income tax, interest and capital gains tax.

If you haven’t used your full allowance yet, consider topping up your ISA before the end of the tax year, as unused allowances cannot be carried forward.

Types of ISAs to Consider
  • Cash ISAs -Ideal for short-term savings but often offer lower interest rates.
  • Stocks and Shares ISAs – Suitable for long-term investing, with the potential for higher returns but more risk.
  • Lifetime ISAs (LISAs) – If you’re saving for your first home or retirement and are between the ages of 18-40, a LISA allows you to invest up to £4,000 per year and receive a 25% government bonus (up to £1,000 annually).
  • Junior ISAs for Your Children – If you’re saving for your children’s future, Junior ISA (JISA) allows you to contribute up to £9,000 tax-free each year. These funds remain locked until the child turns 18, making it a good long-term savings tool.
  • Innovative Finance ISA – Peer-to-peer lending opportunities with higher potential returns (but also higher risk)

Find out more about ISAs in our brochure here.

Review Your High-Interest Cash Savings Accounts

With interest rates fluctuating, it’s important to ensure you’re getting the best possible return on your cash savings. Shopping around for higher-yield savings accounts or fixed-term deposits can help you maximise your interest earnings.

However, be mindful of the Personal Savings Allowance (PSA), which determines how much interest you can earn tax-free each year. Currently:

  • Basic-rate taxpayers can earn up to £1,000 in interest tax-free.
  • Higher-rate taxpayers can earn up to £500 in interest tax-free.
  • Additional-rate taxpayers (earning over £125,140) do not have a PSA and must pay tax on all savings interest.

If your interest exceeds these limits, the excess is taxed at your income tax rate (20% for basic-rate taxpayers, 40% for higher-rate taxpayers).

Tax on Savings

Tax on savings interest depends on your income and available allowances. The Starting Rate for Savings allows you to earn up to £5,000 in interest tax-free if your other income (such as wages or a pension) is below £17,570. This allowance reduces by £1 for every £1 of other income above your Personal Allowance (£12,570). Additionally, most individuals benefit from the Personal Savings Allowance, which lets basic rate taxpayers earn up to £1,000 of interest tax-free, and higher rate taxpayers up to £500. Additional rate taxpayers do not receive a Personal Savings Allowance.

National Savings & Investments (NS&I)

NS&I accounts, including Premium Bonds, offer a tax-free way to save, with the chance to win tax-free prizes instead of earning interest. These are backed by the UK government, providing a safer savings option.

Plan Ahead

Keep an eye on future tax changes, as allowances and thresholds can be adjusted in upcoming Budgets. Staying ahead can minimise last minute urgency before the next tax year.

Make the Most of Your Savings

If you’re unsure about the best savings strategy for your situation, speaking with a financial adviser can help ensure your money is working effectively and tax-efficiently.

To discuss any of the issues raised in this article, please contact us. Further information on ISAs can also be found at gov.uk.

See the other topics in our Bitesize Tax Planning series:
Personal Reliefs
Planning for Retirement
Savings & Investments
Employee Benefits
All Matters Financial Podcast

Dive deeper into the topics mentioned on this insight and more with our All Matters Finance Podcast. Click the link below:

Download our Tax Planning Health Check Below:
This field is hidden when viewing the form
This is used only for conditional logic to redirect users to the correct content and is not displayed on the frontend.
This field is hidden when viewing the form
This is used to identify the amount of times a resource has been downloaded and from what page. This isn't visible on the frontend.
First Name(Required)
Last Name(Required)
Consent

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Pareto Financial Planning Limited is authorised and regulated by the Financial Conduct Authority (FCA).