Nearly 1.2 million savers warned they could face unexpected tax bill
Nearly 1.2 million savers risk being hit with a tax bill when their accounts mature this year. If you are basic-rate (20%) taxpayer then you can earn up to £1,000 in savings interest each tax year before you start to pay tax on interest you've earned.
This is known as the Personal Savings Allowance. For higher-rate (40%) taxpayers, the Personal Savings Allowance is £500 every tax year.
Additional rate taxpayers (45%) don't get any Personal Savings Allowance. If you earn below the personal allowance of £12,570, there is a £5,000 starting rate for savings.
When you start to earn above this amount, you lose £1 of your £5,000 starting rate for savings for each £1 you earn above the personal allowance.
This means once you start to earn above £17,570, your £5,000 starting rate for savings is effectively wiped out. More people have been pushed over their Personal Savings Allowance due to huge improvements in savings rates over the past few years.
If you are worried about breaching your allowance, you can put up to £20,000 a year into an ISA savings account and any interest earned is tax-free. You will also want to make sure that any account you choose gives you the best interest rate for your money.
Paragon Bank has analysed the number of savings accounts that will reach the end of their one year fixed-term between June and the end of the year.
It estimates there are 1.17 million one-year fixed-term adult non-ISA accounts maturing during the period that will generate interest of more than £500, which would breach the Personal Savings Allowance for higher-rate taxpayers.
Of those accounts, 822,000 will accrue more than £1,000 in interest, which is the Personal Savings Allowance for basic-rate (20%) taxpayers.
In total, 1.7 million one year fixed-term adult non-ISA savings accounts are due to mature between June and the end of December, with a value of £70.5billion.
Paragon Bank Head of Savings, Andrew Wright, said: 'Fixed-rate savings dominated the market during 2023 and 2024, with many accounts benefitting from high savings rates.
'Many savers will have had a great return on their savings but could ultimately breach their personal tax allowance as a result.'
He added: 'Many of those one-year accounts are now maturing over the next six months and nearly 1.2 million people could potentially receive a tax bill.
'Therefore, I urge savers review their accounts and make the most of their tax-free allowance by utilising other savings products, including cash ISAs.'
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