What Are the Tax Implications of My Savings and Investments?
Have you ever wondered “Will I have to pay tax on my savings or investments?”, it’s a common question, especially if you’re just starting to build your financial future. The UK tax system has a few friendly features that can help you keep more of your money.
What’s Actually Taxed?
You don’t pay tax on the money you save, but you might pay tax on the interest your savings earn or the income from your investments (like dividends or profits from selling shares).
The Three Big Tax-Free Allowances
These are your best friends when it comes to keeping your savings and investment income tax-free:
- Personal Allowance
You can earn £12,570 of income each year (from any source — job, pension, savings interest, etc.) before you start paying income tax. If your total income is below this, you won’t pay tax on your savings interest either.
- Starting Rate for Savings
If your income (excluding savings interest) is less than £17,570, you might get up to £5,000 of savings interest tax-free. But this allowance shrinks as your other income grows.
- Personal Savings Allowance (PSA)
This one’s specifically for interest from savings:
-
- Basic-rate taxpayers (20%) get £1,000 of interest tax-free.
- Higher-rate taxpayers (40%) get £500.
- Additional-rate taxpayers (45%) get nothing.
From April 2027, the tax rate on savings interest will rise by 2%, for example if you’re a basic rate taxpayer instead of 20% tax on interest above your allowance, it will be 22%.
What About Investments Like Shares?
If you own shares or funds, you might earn dividends or make a profit when you sell them. Here’s how those are taxed:
- Dividend Allowance
You can earn up to £500 in dividends tax-free. Anything above that gets taxed:- 75% for basic-rate taxpayers increasing to 10.75% from 6th April 2026
- 75% for higher-rate taxpayers increasing to 35.75% from 6th April 2026
- 35% for additional-rate taxpayers, this rate will remain unchanged
- Capital Gains Tax (CGT)
If you sell investments for a profit, you might pay CGT. In 2025/26, the tax-free allowance is just £3,000 — down from previous years. So if your gains are above that, you’ll pay tax depending on your income level.
How to Protect Your Money from Tax
The easiest way to avoid tax on savings and investments? Use Individual Savings Accounts (ISAs).
- Cash ISAs: No tax on interest.
- Stocks & Shares ISAs: No tax on dividends or capital gains.
- You can put up to £20,000 into ISAs each tax year.
ISAs are like a tax-free wrapper for your money — and they’re popular for a reason.
From 6th April 2027 the annual cash ISA limit will be set at £12,000 for under 65s, within the overall annual IA limit of £20,000. Savers 65 and over will continue to be able to save up to £20,000 in a cash ISA each year.
Taxes on savings and investments can sound complicated, but once you know the key allowances, it’s actually pretty manageable. Most people won’t pay tax unless they have significant savings or investment income. And if you use ISAs wisely, you can grow your money without worrying about the taxman.
Still unsure how this applies to you, feel free to contact us and we’ll be more than happy to help.
The value of units can fall as well as rise, and you may not get back all of your original investment.
Tax planning advice is not regulated by the Financial Conduct Authority
Approved by In Partnership FRN 190859 December 2025
