The situation around tax on savings ‘really has changed very much’ in the last few years
The situation around tax on savings ‘really has changed very much’ in the last few years
Money Saving Expert founder Martin Lewis has sent out a tax warning to savers after revealing how the shifting landscape of savings interest rates could impact bank balances. With savings account interest rates jumping from about 1 percent to around 5 percent, many who have stashed away £10,000 might be liable for tax due to exceeding their Personal Savings Allowance—the amount you can earn in savings interest before tax is owed.
On ITV’s The Martin Lewis Money Show Live, he cautioned that basic rate taxpayers with £20,000 could be taxed within a year, and higher rate taxpayers, those earning over £50,270 annually, might pay tax on savings as little as £10,000. He expounded further: “So look, savings tax is back for many. When you get interest on your savings, it is eligible for income tax. It counts as income.”
He clarified the allowance details: “But you get a Personal Savings Allowance. What this means is a basic rate taxpayer can earn £1,000 a year of interest and you don’t pay tax on it. It can be in any form of savings account that you like.”
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For higher earners taxed at 40 percent, just £500 of interest is tax-free, while those with an income above £125,000 do not receive this allowance.
Martin Lewis has sounded an alarm for savers, detailing what the implications could be. “So what does that mean in practice? So if you take that top 5 percent figure, as a basic rate taxpayer if you have over £20,000 in savings at 5 percent, you would earn more than a grand of interest so everything above that would be taxed.”, reports the Express.
“As a higher rate taxpayer it’s £10,000.”
He went on to clarify who would be most affected: “So for those people saving £100, £1,000, £2,000, it’s irrelevant to you if you’re a basic rate or higher rate taxpayer.”
“For those people who’ve got savings that get into the tens of thousands of pounds, tax starts to become more important.”
Finally, he pointed out how shifts in interest rates impact savers: “And the reason it’s come back is, when interest rates are 1 percent, to earn £1,000 of interest you needed a hell of a lot in savings. Now they’re 5 percent, you need a fifth of it, so it really has changed very much.”
