Workers who have savings in the bank have been warned they could face a tax charge against their account from HMRC.
Each year, HMRC is fed information from your bank account about how much you’ve made in savings interest, and those who go over the Personal Savings Allowance limit from HMRC will be forced to pay tax on their savings.
And because savings rates are so good at the moment, you could have as little as £10,000 in savings and be eligible to pay tax on it, depending on how much you earn and what your account’s interest rate is.
The best savings accounts on the market right now (such as Monument Bank at 5.01%) pay around 5% interest. That would generate £1,000 of interest if you had £20,000 in it, or £500 if you had £10,000.
The Personal Savings Allowance is £1,000 for those earning below £50,270, but it’s just £500 for those earning over £50,270.
And if you earn £125,000 or more, you don’t get any savings allowance at all and owe tax on every penny of savings interest.
HMRC says: “You may also get up to £1,000 of interest and not have to pay tax on it, depending on which Income Tax band you’re in. This is your Personal Savings Allowance.
“If you go over your allowance, you pay tax on any interest over your allowance at your usual rate of Income Tax.
“If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.”
HMRC adds that you need to register for Self Assessment if your income from savings and investments is over £10,000.
If you’re not employed, don’t get a pension or don’t complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year, and HMRC will then tell you if you need to pay tax and how to pay it.
