Latest news with #PersonalSavingsAllowance
Daily Mail
5 hours ago
- Business
- Daily Mail
Four ways to sidestep tax on savings that'll hit a record 2.6m
Four times as many will pay tax on their hard-earned savings this year compared with 2021-22. Some 2.64million will be stung by income tax on the interest they earn in their savings accounts in 2025-26, says HM Revenue & Customs. The taxman is clawing back earnings on a record number of savers, with another 120,000 dragged into the net over the past year. Four years ago, just 647,000 paid the punitive tax. This is because while savings rates have soared, the Personal Savings Allowance (PSA) has been frozen for nearly a decade. Interest on savings is treated as income and taxed at your marginal rate of income tax. Savers all have a PSA, giving them £1,000 or £500 of interest tax-free, for basic and higher rate taxpayers, respectively. A basic rate taxpayer would breach their PSA with £19,600 in the top easy-access account, while a higher-rate taxpayer would breach it with £9,800 saved. This was £154,000 and £77,000 respectively in 2021. Banks and building societies automatically report interest earned to HMRC. So how can you sidestep the tax? We asked experts for their top tips... 1) Put your savings into an Isa The best way to shield savings from tax is to funnel your money into an Individual Savings Account (Isa). These are much like any other type of cash savings account, except any interest earned is completely sheltered from tax. You can put up to £20,000 into Isas every tax year. Savers can bag a rate above 5 per cent on easy access Isas, while one-year fixes pay up to 4.3 per cent. Laura Suter of stockbroker AJ Bell says: 'Using tax wrappers like cash Isas or investment Isas is now more important than ever to protect your savings.' 2) Max out other allowances If your only source of income is your savings interest – and that is less than £100,000 – you qualify for tax-free allowances. These are the personal allowance of £12,570 and the £5,000 starting rate for savings. Low earners can use their personal allowance of £12,570 to earn interest tax-free if it has not been used up by earnings or other income, such as a pension. Those earning less than £12,570 receive an extra £5,000 tax-free allowance for their savings income. This means someone can earn £12,570 in income and £6,000 in savings interest (£5,000 starting savings allowance plus the personal savings allowance of £1,000) before tax is applied. Another way you could cut a tax bill is by transferring some of your personal allowance to your spouse if they earn less than you and below £12,570. 3) Premium Bonds Tens of millions flock to National Savings and Investments (NS&I) to win one of two £1million prizes in the monthly Premium Bonds draw. Any prizes are tax-free. Prizes offered by the Treasury-backed bank NS&I range from £25 to £1million and the maximum you can invest in Premium Bonds is £50,000. But winning is not guaranteed and your money won't earn interest in Premium Bonds. The odds of any Premium Bonds winning a prize in a monthly draw is one in 22,000. 4) Invest in gilts For those with larger amounts of cash they don't need immediate access to, investing in government bonds can be a tax-efficient alternative. Look for gilts with low coupons that can be bought below the value at which they will mature. This is because price gains made on gilts are exempt from capital gains tax. You receive a regular income, known as the coupon, and if you hang on until the maturity date you get all your money back, except in the unlikely event that the UK defaults on its debt.
Scottish Sun
2 days ago
- Business
- Scottish Sun
Huge tax crackdown on saving accounts approved by Rachel Reeves – what it means for you
Click to share on X/Twitter (Opens in new window) Click to share on Facebook (Opens in new window) RACHEL Reeves has approved a huge tax crackdown that will hit savers. The chancellor's new rules mean banks could be forced to share more of their customers' financial details, as part of plans to make it easier for the Government to collect taxes. Sign up for Scottish Sun newsletter Sign up 1 Rachel Reeves has been told she needs to find £50billion worth of revenue or cuts Credit: EPA Under the plans, banks will need to ask new and existing customers with savings accounts for their National Insurance numbers from April 2027. This will make it easier for HMRC to bill savers who have breached their personal savings allowance. Most people have a personal savings allowance that lets them earn up to £1,000 in interest on their savings without paying any tax. However higher-taxpayers have a lower allowance of £500 and additional-rate taxpayers don't get a tax-free allowance. Read more on Rachel Reeves POT LUCK State pension could rise by £478 next year for millions of households Savers typically breach the personal allowance with just over £16,500 in savings, according to wealth firm The Private Office. It's estimated 2.54million people will have to pay tax on their savings in the current tax year. That's up from just 647,000 in the 2021/2022 tax year. But HMRC has said it's unable to get hold of taxpayer data properly in about a fifth of cases - meaning there could be millions of pounds worth of tax that doesn't get collected. The chancellor is hoping to boost Government funds after a report by the National Institute of Economic and Social Research (NIESR) suggested she must find £50billion worth of revenue or cuts. The plans to require banks to share more customer information will be introduced in legislation next year. What Does My Tax Code Mean? A Simple Guide to Your HMRC Letter They would see more workers pay savings tax directly from their pay packets without submitting a self-assessment. Customers applying for current accounts will not need to share extra data. The Government admitted this would mean "significant costs" of approximately £35million. Banks have also warned it could cost them as much as £10million to make the change, and that it could take years to implement. Millions could be hit with unexpected tax bills HMRC is expecting to collect more than £6billion in tax from savers this tax year. In what's being dubbed a "tax by stealth", more people are being dragged into the tax net without any policy change. More people are being forced to pay tax on their savings because interest rates have soared and the Personal Savings Allowance (PSA) has been frozen for over nine years. Many won't realise they have breached their allowance until they see their pay packets decrease. If you file a tax self-assessment then you will need to declare any interest earned, but for others HMRC will collect the data directly from your payslip by adjusting your tax code. You should get a letter from HMRC if your tax code has been changed. People are more likely to have breached the tax-free limit if they've moved their money to accounts with high interest rates. Figures disclosed to AJ Bell suggest the average person is paying £2,300 in tax on their savings. What you can do to avoid paying tax on your savings If you want to avoid paying tax on your savings interest, the best way to shield your money is to put it into an ISA account. These accounts let you save up to £20,000 per year without having to pay any tax on the interest you receive. They're also a great option because they've got highly competitive interest rates. There are five types of ISA: Cash ISA, Stocks and Shares, Lifetime ISA, IFISA and Junior ISA. The most commonly used ones are Cash, Stocks and Shares and Lifetime ISAs. A Cash ISA is very similar to a normal savings account, but with the added bonus of being able to save money tax-free. Stocks and Shares ISAs allow you to invest into the stock market, so these are more risky but they can give greater returns if you're willing to keep your money locked away for longer. Lifetime ISAs can be used if you're saving up for buying a home or for retirement.
Daily Mirror
6 days ago
- Business
- Daily Mirror
Thousands of Brits to get letter from HMRC after new tax rule comes into force
Most people can earn some interest from their savings without paying tax, but you could have your tax code changed if you go over your allowance. Here's what you need to know HMRC is changing the tax code for some savers who have reached their allowance limit. Most people can earn a certain amount of interest from their savings without having to pay tax. Now, it's different. Your allowances for earning interest before you need to pay tax on it include your Personal Allowance, starting rate for savings and Personal Savings Allowance. These allowances are given each tax year (April 6 to April 5). The amount you receive depends on your other income. If you haven't used up your Personal Allowance on your wages, pension or other income, you can use it to earn tax-free interest. You might also be able to earn up to £5,000 in interest without having to pay tax on it. This is your starting rate for savings. In other related news, there have been state pension payment changes for August, as people have been told to 'be aware'. The more you earn from other income (like your wages or pension), the lower your starting rate for savings will be, reports Birmingham Live. If your other income is £17,570 or more, you're not eligible for the starting rate for savings. If you exceed your allowance, then you'll have to pay tax on any interest over your allowance at your usual rate of Income Tax. HMRC advises: "HMRC may update your tax code if you start a new job, you get taxable state benefits, you start to get income from an additional job or pension and your weekly State Pension amount changes." Savers could face other changes if your employer informs HMRC that you've started or stopped receiving benefits from your job or you claim Marriage Allowance from the taxman. Another tax code change could occur if you claim expenses that you get tax relief on. You might also be placed on an emergency tax code if you switch jobs and HMRC doesn't receive your income details promptly. If there's been a change in your tax code, you can utilise the Check your Income Tax online service to discover the reason. When it comes to taxes and HMRC, it's best to start looking that you're under the appropriate tax code now, rather than leaving it for later, so you don't get a scare in the future.
Daily Mail
30-07-2025
- Business
- Daily Mail
Britain's 50 biggest savers will earn £3MILLION EACH in interest alone
Britain's biggest cash savers have racked up interest worth an average of £3.2million each on their savings pots. There are 50 cash savers in the UK who built up this huge amount of average interest on their savings in the financial year 2022-23, the last for which most recent data is available. That is according to information from His Majesty's Revenue and Customers, acquired via a Freedom of Information request by the money app Plum. Assuming a typical high street interest rate of 2 per cent, a saver today would need a cash pile of around £160million to generate this kind of interest. But someone with one of the top easy-access accounts could be earning as much as 4.6 per cent, meaning they'd need a pot of £69.5million However they earn it, these savers will lose almost half of their interest to savings tax. Someone earning savings interest of £3million would be handed a £1.4million tax bill, assuming they are additional rate taxpayers and have no other source of income. This is because additional rate savers do not get a Personal Savings Allowance and pay savings tax in full on interest. They are also £159,980,000 over the annual £20,000 tax-free cash Isa allowance. How much are savers taxed on interest? The personal savings allowance allows savers to earn up to £1,000 of interest tax-free, but is only for basic rate taxpayers. Higher rate tax payers see it halved to just £500 and additional rate tax payers have no tax-free allowance at all. If you go over your allowance, you will pay tax at your usual income tax rate. > How the personal savings allowance and savings tax work The savers earning more than £3million interest on their savings are most likely to be lottery winners, heirs to vast estates or entrepreneurs who have sold a thriving business, according to Plum. But thousands of savers with more modest sums tucked away are facing annual tax bills in excess of £10,000 on their interest. The data released by HMRC to Plum relates to interest earned solely from UK banks and building societies by taxpayers who completed a self-assessment return. There were 550,000 taxpayers who earned in excess of £1,000 interest, the threshold at which a basic rate taxpayer would begin paying tax on interest. The average reported interest was £430, not including taxpayers who had no liability. Some 58,000 savers earned more than £10,000 interest on their cash, including 24,000 who reported interest of more than £20,000, and 6,000 whose interest was in excess of £50,000. There were 2,000 savers whose cash savings generated interest of more than £100,000, which at today's typical high street interest rate would require deposits of at least £5million. A higher rate-taxpayer with more than around £14,500 in savings would breach their tax-free savings allowance this tax year, according to rates scrutineer Moneyfacts Compare. Record numbers of people have been pulled into the higher tax band, which means their tax-free savings allowance is slashed - and they will lose 40 per cent of interest above it to tax. The number of higher rate tax payers is set to balloon to more than 7million as thresholds remain frozen, figures from HMRC show. HMRC expects to collect £6.1billion in tax on savings in the 2025-26 tax year. Of this around £1.3billion is expected to be from higher-rate taxpayers. Additional rate taxpayers, meanwhile, are expected to foot 70 per cent of the bill paid in savings tax at £4.2billion. Five of the best cash Isas Products featured are independently selected by This is Money's specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. A cash Isa is an essential account for savers that protects you from tax on your interest. This means that your pot can grow without tax dragging it back - something that is especially important for the growing number of 40 per cent taxpayers. This is Money's savings experts scour the market for the real best cash Isa deals - looking for top rates and accounts that come without catches to trip you up. Below you can find a run down of our top deals and you can check all the best cash Isa rates in our savings tables. CMC Invest* easy-access - 5.44% (0.85% bonus for 3 months) - Facts: £1 to open, no limit on withdrawals, short bonus - Transfers in: Yes - Flexible: Yes Trading 212* - easy access - 4.82% - Facts: £1 to open, no limit on withdrawals, 0.72% bonus for 12 months - Transfers in: Yes (but won't get bonus rate) - Flexible: Yes Plum* - easy access - 4.82% - Facts: £1 to open, rate drops after three withdrawals, 1.53% bonus for 12 months - Transfers in: Yes (but won't get bonus rate) - Flexible: No Cynergy Bank one-year fix - 4.3% - Facts: £1,000 to open - Transfers in: Yes - Flexible: No Cynergy Bank two-year fix - 4.2% - Facts: £1,000 to open - Transfers in: Yes
Daily Mirror
15-07-2025
- Business
- Daily Mirror
Thousands of Brits face surprise tax bill letter from HMRC
The taxman has been sending out letters to people in the UK in a bid to register for self-assessment or ordering them to pay extra tax People with savings of £3500 or more are being warned that they may receive an unexpected tax bill from HM Revenue and Customs (HMRC) in the forthcoming weeks. HMRC has the capability to automatically detect interest accrued on your bank savings, and if this exceeds a certain limit, you will be issued a notice for an additional tax payment. With the new 2025-25 tax year already underway, the tax authority has been dispatching letters to individuals, urging them to register for self-assessment or instructing them to pay extra tax. Now that the entire previous financial year has concluded, HMRC is evaluating people's financial circumstances and issuing tax bills to those found to owe tax on their savings accounts. Your bank automatically reports these details to the taxman unless your savings are held in a Cash ISA, which is tax-exempt, reports the Daily Record. Under the Personal Savings Allowance rules, you can accumulate up to £1000 per annum in savings interest in your bank accounts without it being taxed, but this only applies to individuals earning less than £50,270. If your earnings exceed £50,271, your Personal Savings Allowance is reduced to a mere £500. And if your income reaches £125,000, your Personal Savings Allowance plummets to £0. The precise amount you will owe depends on your earnings, the amount of interest you received, and when it was paid out. However, you may face a tax bill with savings as low as £3500 if you had invested it in a three-year fixed savings account, as the interest is paid out in a single lump sum. In a fixed account, the interest is considered taxable in the year it is received, rather than being spread out over the account's term. For instance, if you deposited £3500 into a three-year fixed savings account earning 5% interest, you would accrue over £500 in interest. The interest on fixed accounts is "crystallised" upon payout, meaning you receive the entire interest amount at once. In this scenario, the £500+ interest payment would exceed your £500 Personal Savings Allowance, potentially triggering a letter from HMRC, especially if you have other interest-earning accounts. High-income earners should be aware that exceeding the Personal Savings Allowance by just £100 would result in a £40 tax liability, as 40% of every £1 above the allowance is taxed.
