Savers are facing higher tax bills: Four ways to keep more of your money’s growth

As your savings grow, you may notice your tax bills starting to rise.

In fact, MoneyAge reports that the number of people paying over £5,000 in tax on their savings interest has more than tripled between 2022/23 and 2025/26.

Naturally, you want to hold onto your money’s growth. Read on to explore why savers’ tax liabilities are rising and four ways to grow your wealth tax-efficiently.

Interest on non-ISA savings is taxable when it exceeds your Personal Savings Allowance*

*Not where there is unused personal allowance or starting rate band

If your savings are held outside of an ISA or exceed the annual ISA allowance (more on this later), your interest earnings may be subject to Income Tax.

Depending on your annual income, you may be able to earn some interest tax-free up to your Personal Savings Allowance (PSA) – detailed in the table below.

Interest gained above these thresholds may be liable for Income Tax at your marginal rate, as of 2026/27. However, as shown in the table above, these rates will increase by two percentage points from 6^th April 2027.

If your non-savings income is less than £17,570, you may also benefit from the starting rate for savings. The maximum starting rate is £5,000, and this sits alongside your PSA.

The taxable portion of your wealth may be growing

The PSA has remained frozen since it was introduced in 2016. Had it risen with inflation, the Bank of England’s (BoE) inflation calculator estimates that, in May 2026, basic-rate taxpayers would have been able to earn interest of £1,411.82 a year, whilst higher-rate taxpayers would have had an allowance of £705.91.

So, not only are the tax rates rising, but the taxable portion of your savings is likely to be growing too.

What’s more, high interest rates in recent years could be accelerating your savings growth. Whilst high rates are generally positive, they can increase your tax bills. Since interest earnings count towards your Income Tax band, even if falling within the PSA, PA or starting rate band, in some cases, they can even push you over the threshold to become subject to a higher marginal rate.

With more people choosing to save rather than invest amid an uncertain economic climate, many savers could be accruing more interest – and being charged more tax – than ever. Barclays data suggests that nearly 15 million people were not investing despite being in a position to do so in 2024, up from 13 million in 2022.

But by taking advantage of the following tax-efficient strategies, you may be able to grow your wealth without growing your tax bill.

Four ways to grow your wealth tax-efficiently

1. Use a Cash ISA to save

In 2026/27, you can save up to £20,000 across all adult Individual Savings Accounts (ISAs) without being taxed on your fund’s growth. By using a Cash ISA, you can earn tax-efficient interest on your savings.

That said, from 6^th April 2027, the Cash ISA allowance will effectively reduce to £12,000 a year for under-65s. £8,000 of the total allowance will be allocated exclusively to investment ISAs (more on these below).

The £20,000 allowance will remain unchanged for those aged 65 and over.

2. Invest through an ISA or General Investment Account

Taking advantage of the full ISA allowance by using a combination of cash and investment ISAs could help mitigate your tax bills. There are two investment ISAs to choose from:

• Stocks and Shares ISA: Invest in a diverse range of assets and generate tax-efficient returns.
• Innovative Finance ISA (IFISA): Invest in less liquid assets, such as peer-to-peer loans and crowdfunding, without being taxed on gains.

Once you have used up your annual ISA allowance, you might look to invest in a General Investment Account (GIA). Whilst your returns may be taxed, the tax-efficient allowances are separate from the PSA.

• Dividend Allowance: You can earn up to £500 in dividends each year before being taxed.
• Annual Exempt Amount: Each year, your first £3,000 (2026/27 tax year) of capital gains are usually exempt from Capital Gains Tax (CGT).

By spreading your wealth across savings and investments, you may be able to keep more of your growth below your tax-efficient thresholds. However, it’s important to note that the value of your fund may go down, meaning you get back less than you paid in. Speak to a Financial Planner before investing to ensure it’s suitable for your circumstances.

Find out more about how we can support you with your investments.

3. Pay into your pension

Contributing to a pension is one of the most tax-efficient ways to grow your wealth.

• You can generally claim tax relief on your own contributions at up to your highest marginal tax rate. Tax relief is capped at contributions up to the level of your annual income or £3,600 gross if more. There is also a £60,000 Annual Allowance (2026/27) which limits tax efficient funding from all sources combined, including employer contributions. Carry forward may be available.
• Your pension funds are invested and are held in a tax-efficient wrapper as they grow.
• If you contribute via a workplace salary sacrifice scheme, you may also reduce your National Insurance contributions (NICs).
• Money paid into a pension is deducted from your adjusted net income, which could help you avoid moving into a higher tax bracket, regain tax-free allowances, benefit from free childcare etc.

However, you can’t generally access your fund until age 55 (57 from April 2028). So, if you’re likely to need the funds sooner, putting a large amount of your savings into a pension may not be suitable.

Looking for support with your pension planning? Learn how we can help.

4. Give cash gifts sooner rather than later

If you’re planning to gift cash to a loved one in the future, it could be worth transferring the funds earlier.

For example, you might be holding onto funds to help your child buy a first home, pay for a wedding, or celebrate another milestone. Gifting the money sooner can mean interest is accrued in their name and doesn’t contribute to your tax bill.

In some cases, you might consider using a trust to place the funds in their name, whilst limiting their access until a certain age or stage of their life. The options for trusts are complex, so speak to a Financial Planner before transferring assets.

Read more: Why gifting your wealth early could have a greater impact on your beneficiaries (and your tax bill).

Get in touch

By identifying tax-efficient strategies for your needs and circumstances, our Financial Planners could help you devise a plan to keep more of your wealth as it grows.

Email us at enquiries@pen-life.co.uk or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pensions Regulator.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate advice on Estate Planning, Tax Planning or Trusts.