Tax efficiency on savings interest

emspy12

Yes, that's exactly what I am asking--thank you.

lr1277

In terms of reducing your tax bill, you can also put £50k in total into premium bonds. The advantage is that any winnings are tax free.

The downsides are:

You may not win anything!

With any winnings you can elect them to be added to your premimum bond holding, or sent back to your current account. Though I don't know what happens if you alreay hold 50k in premium bonds then what happens to your winnings. Can you add them to your 50k holding? Or any winnings that take you above £50k have to be transferred to the linked current account? No idea, sorry. The other advantage is they are an easy access product so you can retrieve the money at any time.

In terms of ISA's I haven't followed your questions but here is my take.

Any money (say some or all of your inheritance) put into a cash ISA (upto 20k in a financial year); the interest earned is tax free. You don't declare this interest on a tax return. If you are not aware the tax year starts on 6th April and finishes on 5th April the next year. Say you got your inheritance next month, you could put £20k into a cash ISA then and then another £20k on or after 6th April 2026. You don't have to keep the ISA with one provider. You can put this year's 20k with one provider and then next year's 20k with another provider. If you want to stay with the same provider, on 6/4/26, you can top up any holding with a further 20k.

Hope that helps.

Edited to add a caveat: There has been much speculation as to what the Chancellor will do with tax free savings in the upcoming budget. You would be well advised to start any ISA savings before the budget if possible. Though it is possible (though this is not guaranteed) any tax rule changes will apply from the start of the next financial year.

Yorkie1

If you already hold the maximum £50K in PB, any winnings will be paid to your nominated account - they can't be used to buy more PB as you already have the maximum.

LITRG

Hello! Hope you find our article, summarising a few different tax-efficient savings options, helpful: https://www.litrg.org.uk/news/are-you-making-most-tax-free-and-tax-efficient-ways-saving-uk. Thanks 

dunstonh

And don't forget the pension tax wrapper.   Pension beats ISA, and if you are fully retiring in 5 years and use a deposit option in the pension, you could find that as the best option for at least some of the money.