In August, the Bank rate set by the Bank of England reached a 15 year high, rising from 5% to 5.25%. Whilst scary for mortgage payers, this is welcome news to savers. However, this has resulted in many people paying income tax on their savings interest for the first time in seven years. In fact, more than six million people may be affected. This is not only due to higher interest rates … the drop in personal savings allowances impacts too.
Tax is due on interest earned above your personal savings allowance. This allowance varies depending on your income tax bracket, for the 2023-24 tax year the allowances are as follows:
- Basic-rate taxpayers (earning up to £50,270) – £1,000
- Higher-rate taxpayers (£50,271 – £125,140 annually) – £500
- Additional-rate taxpayers (above £125,140) – £0
It’s important to note that your personal savings allowance does not include interest earned from ISAs as these have a tax-free wrapper (and a maximum new investment amount each year).
What happens if you need to pay tax on your savings interest?
If you already submit a self assessment tax return, the interest earned is reported within this return. Any tax due is reflected in your tax bill calculated by HMRC.
If you exceed your personal savings allowance and earn less than £10,000 interest, HMRC calculates and informs you of your tax liability. It does this by liaising direct with financial institutions such as banks.
Should you earn more than £10,000 interest, you need to submit a tax return to HMRC.
Do you need to report your savings interest?
You can check if you need to submit a self assessment form via the Government’s website.
Avoid the time and stress involved completing tax returns! Talk to the friendly team at re:accounts. We minimise your tax liability, completing and submitting your tax return on your behalf. Contact us to arrange a free, no-obligation chat
