Tax-free savings
One way to mitigate the increase in tax on savings income is to invest as much as possible in an Individual Savings Account (ISA).
This is because any interest earned on savings held in an ISA is completely tax-free. The maximum amount an individual can pay into an ISA is £20,000 per year. Planned changes to this annual limit which would have restricted the amount of cash invested each year to £12,000 for taxpayers under 65 have been cancelled, so the cash ISA limit remains at £20,000 per year for everyone.
A new First Time Buyer (FTB) ISA will be introduced in April 2029, providing a new way for first-time buyers to save towards a property deposit. The FTB ISA will provide a 25% Government bonus on the final account balance, up to a maximum of £20,000. The bonus will be paid on withdrawal, towards a purchase of a first home worth up to £450,000.
Unlike the existing Lifetime ISA (LISA) which is available for savers aged 18 to 40, the FTB ISA will not have an upper age limit. The annual contributions limit will be £4,000.
The FTB ISA will be available to new savers, while existing LISA holders will be able to continue using their accounts under the current rules. If money held in a LISA is used to purchase a first home costing more than £450,000, a withdrawal charge of 20% applies from 29 October 2026. The charge for other unauthorised withdrawals remains at 25%.
