Five ways to protect your money as Budget sees savings tax raid

Among the key measures announced in chancellor John Healey’s first Budget was an increase in the rate of savings tax, while any hopes for a reversal of the inclusion in pensions on inheritance tax (IHT) and the freeze on tax thresholds were dashed.

However, there’s still plenty you can do to protect your money from HMRC. Here’s five key ways you can Budget proof your finances and, if you want more detail on the big changes announced, check out our article on how the Budget might affect your finances.

1. Protect your cash savings from tax

Higher interest rates and frozen tax bands mean more savers are facing tax bills on their cash savings and the Budget compounded the situation with an increase in the income tax due on savings. Already set to go up two percentage points in April, this was increased again by a further two percentage points.

It will take the tax rates for cash savings to 24% for basic-rate taxpayers, 44% for higher rate payers and 49% for additional rate taxpayers. It’s more important than ever to make sure you’re protecting your cash from tax.

The Personal Savings Allowance means basic-rate taxpayers can only earn up to £1,000 in interest before paying tax, while higher-rate taxpayers have a £500 allowance. Additional-rate taxpayers receive no exemption. For those nearing or exceeding their allowance, using a Cash ISA can be a simple way to protect interest from tax. In recent years, many savers avoided Cash ISAs due to low interest rates, but often ISAs are now the more attractive option.

The U-turn on reducing the Cash ISA allowance means you can still put in up to £20,000 in cash or investments. Some couples opt to maximise their tax free and ISA allowances by moving cash savings to the person who has unused Personal Savings Allowance, unused ISA allowance or is the lower taxpayer.

2. Beat the frozen allowances

Despite hints from prime minister Andy Burnham of a possible change, income tax bands are still set to remain frozen until 2031. It means more people will be pushed into the next tax bracket if they get a pay rise and will see more of their income hit by tax than if these thresholds had been increased in line with inflation. What’s more, there are lots of tax traps that may catch you out if you move into a new tax bracket or over certain earnings levels.

For example, someone with an adjusted net income of £60,000 or more will start to see any child benefit clawed back and someone breaching the £100,000 limit starts to lose their tax-free personal allowance for the year. In both cases, their extra earnings face an effective tax rate of 62% if you include National Insurance. Equally if you move into the next tax band, you could face higher tax rates on dividends, capital gains or your savings income.

You can steer clear of these pitfalls by contributing money into your pension, to bring your taxable income below the different thresholds. You just need to work out what extra contributions you need to make to reduce your ‘adjusted net income’. This will involve a little bit of extra admin but will still be well worth it when you consider the potential tax savings on offer.

3. Use the Lifetime ISA while you can

There are plenty of ways to claim free money from the government, and one of the best for some people is the Lifetime ISA. In the 2025/2026 tax year, a record 99,750 people used a Lifetime ISA to purchase their first home, according to the Office for National Statistics, showing how popular the accounts are. Having announced plans to review it and offer a simpler product instead, the Budget revealed more detail on the First-time buyer ISA.

From April 2029, the First time buyer ISA will replace the Lifetime ISA, allowing £4,000 in annual contributions. The 25% government bonus will be added on withdrawal for homes under £450,000.

Rather than net contributions, the bonus will reflect the final balance, so investment growth will count too. The maximum bonus will be £20,000.

Unlike the Lifetime ISA, which must be opened before 40, with contributions ending at 50, there will be no upper age limit. You will only be able to hold one First time buyer ISA, and transfers between this new scheme and Lifetime ISAs won’t be permitted.

For now, those eligible for a Lifetime ISA can still open the account, pay in up to £4,000 each tax year and receive a 25% government bonus, adding up to £1,000 in free money per year. For anyone saving for their first home, the Lifetime ISA is pretty unbeatable with that 25% government bonus boosting your deposit savings. In a slice of good news, the government also announced in the Budget a reduction in the penalty for those using a Lifetime ISA to buy a property worth more than £450,000 from 25% to 20%.

Equally, for those who are self-employed and so don’t have a workplace pension, the Lifetime ISA can be a great way to save for retirement. While employed people would be better off maximising any matched company contributions on offer for their pension, self-employed people don’t have this option.

4. Use gifting allowances to reduce inheritance tax

There was no U-turn or change to plans in the Budget on pensions and IHT, meaning many estates will face higher IHT from next April.

But there are simple ways to cut how much your estate will pay. Every individual can gift up to £3,000 per year free of IHT, and this allowance can be carried forward if it wasn’t used in the previous year. You can use this either on one person or split between several others. Couples can combine their allowances to give away up to £6,000 tax-free annually (or £12,000 if they didn’t use the allowance last year).

On top of that, extra allowances apply for wedding gifts, with parents able to gift £5,000 to a child, grandparents able to give £2,500 to a grandchild, and anyone else allowed to give £1,000 tax-free. Small gifts of up to £250 per person each year are also exempt. Other gifts outside of these allowances are called potentially exempt transfers, meaning they only escape IHT if you survive for seven years after making them. If you die within seven years, then the value of the gift is added back into your estate, but taper relief might reduce the rate of IHT on it if at least three whole years have passed.

The most generous exemption is for gifts made from excess income, which can be unlimited if they don’t reduce the donor’s standard of living. If you haven’t used up your annual gifting amounts, it’s a good idea to consider it before the end of the tax year.

5. Use all the tax breaks you can

While the tax burden is expected by the Office for Budget Responsibility to hit a new record in the 2027/28 tax year, there are still lots of tax breaks available that people may not be using. Do some digging around and see if you’re eligible for valuable government tax breaks or benefits. Check whether you’re entitled to things like marriage allowance, child benefit, free childcare hours, tax-free childcare or other benefits, as it could lead to significant savings.

On top of that, make sure you’re using any allowances you can, such as ISA and pension allowances. Pensions offer one of the biggest opportunities, with basic-rate taxpayers receiving 20% tax relief, while higher and additional rate taxpayers can reclaim an extra 20% or 25% through self-assessment. This means that for a higher-rate taxpayer, every £1 in their pension only costs 60p.

On top of that, a standard ISA will give you a tax break on your investment growth and interest earned, as well as any withdrawals being tax-free. Every adult can pay in up to £20,000 a year into the accounts, but use it or lose it, as once the new tax year hits next April that allowance is reset.