The 10% Allowance Strategy: Your Best Tax-Free Savings Account

In the UK, we are obsessed with ISAs and Savings Accounts. We scour the internet for a 4.5% rate instead of a 4.2% rate.

Meanwhile, we ignore the giant debt sitting in the background charging us 5% or 6%.

The Problem: The ERC Barrier

Most borrowers are terrified of Early Repayment Charges (ERCs). Banks warn you that leaving your fixed deal early will cost you thousands.

However, almost every major UK lender (Halifax, Nationwide, Santander, HSBC) has a loophole: the 10% Overpayment Allowance.

The Agitation: Taxable vs. Tax-Free

Let’s compare saving vs. overpaying.

• Savings Account: You earn 5% interest. But if you are a Higher Rate taxpayer, you pay 40% tax on interest over your allowance. Your real return is 3%.
• Mortgage Overpayment: You save 5% interest. There is no tax on "money saved". Your real return is 5%.

A guaranteed, risk-free, tax-free 5% return is beating almost every investment in the market. Yet, most people leave their 10% allowance unused every year. Use it or lose it. The allowance usually resets annually (calendar year or anniversary of the loan).

The Solution: Maximize the 9.9%

The strategy is simple: Calculate exactly 10% of your outstanding balance at the start of your mortgage year. Set up a standing order or make a lump sum to hit that limit—but do not cross it.

If your balance is £200,000, you can overpay £20,000.

📱 The Amorti Simulation

Check the impact of hitting the limit.

1. Open AmortiApp.
2. Enter your loan details.
3. Go to "Extra Payments".
4. Add a recurring annual payment equal to 10% of your starting balance.

• The Result:* You will see the loan term collapse. A 25-year mortgage often drops to 11 or 12 years just by utilizing the 10% allowance. You save tens of thousands in interest without ever paying a penny in bank penalties.

Stop paying tax on savings while paying interest on debt.

Calculate My 10% Limit