Martin Lewis’ Money Saving Expert team has told people about a genius way to avoid tax legally using an NS&I Premium Bonds account.
NS&I, which runs Premium Bonds in the UK, has launched a savings account which offers fixed term bonds for two or five years, paying interest at 4.6 or 4.1 percent.
While those aren’t necessarily the very best rates on the market today, there is a quirk to the way the accounts work which can help you legally avoid paying tax on savings interest.
The Personal Allowance means you can make £1,000 of interest on savings before you start paying tax on it, or if you’re a higher rate taxpayer, you can make £500 of interest before paying tax on any amount above that.
But with an NS&I savings account, you could legally organise your finances in a way which avoids or reduces your tax burden because you can choose when the savings interest is paid.
Martin Lewis’ MSE team explained: “You can choose when and where to have the interest paid. The Guaranteed Income Bonds pay interest monthly directly into your linked current account, while the Guaranteed Growth Bonds pay interest annually into the bond itself – meaning you can only access the interest when your bond matures.
“This is important if you need to pay tax on savings interest, as it’s when you can access your interest that counts for tax purposes. Unlike NS&I’s Premium Bonds, where any prizes you win are tax-free, interest you earn from British Savings Bonds IS taxable.”
