Nationwide, NatWest, Lloyds customers issued HMRC warning
Experts have explained that Brits with long-term fixed-rate savings accounts might get an unwelcome knock on the door from HMRC.
A lot of banks nowadays offer two or three-year fixed savings accounts as a way to grow your funds.
But while you're counting the cash at the end of the term, you could be hit with a tax demand because HMRC views the interest from these accounts as income within a single year.
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For some savers, the final payout could nudge them over the tax-free threshold, triggering a tax event. However, it's key to remember that this doesn't apply to cash ISA accounts, which remain tax-free up to £20,000.
The current tax-free interest earnings cap for basic-rate taxpayers sits at £1,000 annually. Those on the higher-rate can pocket up to £500 without owing tax, but additional-rate taxpayers aren't afforded any tax-free interest allowance.
Laura Suter, personal finance director at AJ Bell, told the Star: "Many people won't realise that [fixed rate accounts] could leave them with a tax headache in the future."
She added: "You are taxed on the interest on your savings when it is accessible by you.
"So if you pick a fixed-rate savings account that pays out all the interest at maturity, for tax purposes all of that interest will be counted in one tax year.
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"This means that the interest from just one account could take you over your Personal Savings Allowance on its own."
Ms Suter suggested getting an account where interest is paid out monthly or annually instead.
She continued: "This means it is spread across different tax years.
"Or you can opt for a fixed-term ISA savings account, where you won't pay any tax on the interest."
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an hour ago
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an hour ago
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