Your quick guide to tax free savings
Posted on 20th February 24
Your money grows quicker when you don’t have to pay tax on the interest you earn. With an ISA account you don’t have to pay tax on the interest earned over your normal tax free savings allowance. Get a quick answer to your ISA questions below.
What is an ISA?
ISA stands for Individual Savings Account and is a type of savings account that allows you to grow the money you save, tax free. The government incentivises saving through ISAs, allowing individuals to save a set amount each year without it impacting your tax bill. This means your money will work harder for you than if it was in a regular savings account, because none of the interest you earn is taxed.
What do I need to know about my annual tax free allowance?
Each tax year (6th April to 5th April the following year) UK residents aged 16 or over, can use an ISA allowance to save tax free. The ISA allowance for the current tax year 2023/24 is £20,000. You can split this across different types of ISAs and with multiple providers. But you can’t split the allowance across more than one ISA of the same type in each tax year.
Can I carry over any ISA allowance I haven’t used to the next tax year?
No. As soon as the tax year ends (5th April) your allowance for that year ends too. If you don’t use your full allowance in one tax year you aren’t able to carry it forward to the next tax year.
Does my ISA allowance affect my Personal Savings Allowance?
The Personal Savings Allowance is the amount of interest you can earn on your savings each year without paying tax. Any tax free interest you earn in an ISA doesn’t count towards your Personal Savings Allowance.
Choosing the right ISA for you
Bath Building Society only offer Cash ISAs and Lifetime ISAs, but there are different types of ISA, each catering for different savings goals.
Cash ISA
A low risk ISA perfect for easy access savings. So if you pay income tax, a cash ISA could be the best home for your first £20,000 of savings. Your money will earn interest like a current account does. Jump to find out more about our Instant ISA which is a cash ISA.
Junior Cash ISA
You can save up to £9,000 in a tax year on behalf of a child. The child you open an Junior Cash ISA for will be able to access the money from their 18th birthday. They won’t need to pay any tax on the savings, no matter how much you have put away for them. Find out more about our Junior Cash ISA.
Lifetime ISA
Designed for first time buyers and retirement savings. You can pay up to £4,000 into a Lifetime ISA each tax year. This counts towards your overall annual ISA limit of £20,000, so if you put £4,000 in a Lifetime ISA, you can only put up to £16,000 in other ISAs. The Lifetime ISA offers generous government bonuses but stricter contribution rules. Jump to find our more about our Lifetime ISA.
Stocks & Shares ISA
Invests your money in companies, funds and bonds for potentially higher returns which can be good for longer term savings goals, but be prepared that interest can go down as well as up. We do not offer a Stocks & Shares ISA at Bath Building Societ
