How to save £58,000 tax-free in a Cash ISA before change

With the end of the tax year fast approaching, savers may be looking for ways to make the most of their Cash ISA allowances.

UK residents aged 18 and over can currently save up to £20,000 a year in an Individual Savings Account (ISA) without paying tax on the interest earned.

These accounts have become particularly popular during the recent period of high interest rates, as millions of savers have been met with hefty tax bills on their nest eggs. In a normal savings account, Britons can typically only earn so much interest before paying tax.

For example, basic-rate income taxpayers can earn up to £1,000 in interest, tax-free, per year, and higher-rate taxpayers can earn up to £500. Additional-rate taxpayers receive no exemption and are taxed on all interest earned outside of tax-free accounts.

ISAs offer a significant advantage by allowing savers to accumulate interest without the burden of taxes, making them an attractive option for those looking to protect their money.

While the current £20,000 tax-free allowance is generous, there are strategies to increase the threshold further before the tax year ends on April 5.

If you’ve already reached your annual ISA limit, but your partner hasn’t, you can contribute to their account instead, effectively raising your combined ISA allowance to £40,000.

Additionally, if you’re saving for a child, you can open a Junior ISA on their behalf. Junior ISAs offer an annual allowance of up to £9,000.

Together, a family of four could potentially save up to £58,000 a year tax-free across their ISA accounts, which could help make the most of their tax-free savings opportunities before the change in the tax year.

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However, Britons hoping to benefit from this tip may have to act fast, as the sizeable £20,000 individual allowance could be under threat.

The Treasury is reportedly considering ways to reform the tax-efficient savings tool - and slashing the tax-free allowance to £4,000 per year is one controversial suggestion.

Lobbyists have also been calling for scrapping Cash ISAs altogether in an effort to divert more money into stocks and shares ISAs and investments that would benefit the wider economy.

The speculative changes have been met with widespread criticism, with some arguing that retaining confidence and stability in the nation’s saving system is “vital”.

Rob Morgan, chief investment analyst at Charles Stanley, said: “As a nation, we are already not saving or investing enough.

“It’s also important that those with shorter-term objectives or who cannot tolerate any risk are not penalised. The Cash ISA is an important and well-recognised product for these people, and it can remove worries about reporting and incurring tax liabilities on interest.”

He added: “What’s more, the money stored in Cash ISAs has some beneficial effects on the UK economy. While it’s not directly invested, it is often money that can be loaned out by banks and other providers to households and businesses. It doesn’t make sense to take an axe to Cash ISAs, though there is a stronger case for echoing the past with a larger annual ISA allowance to encourage more investing.”

Following a meeting with city executives last week, Chancellor Rachel Reeves reportedly said: “It is really important that we support people to save, to achieve their aspirations. At the moment, there is a £20,000 limit on what you can put into either cash or equities, but we want to get that balance right.”