It might surprise you to know that HMRC collected £3.4bn worth of savings tax last year, a rapid increase of £1.2bn from the year before. This significant rise is due to the frozen savings allowances and the recent changes in the interest rate cycle, with ever rising interest rates benefitting more individuals compared to the last 15 years since the 2007/08 financial crash.
Savings income includes interest received on:
- Bank and building society accounts.
- National Savings and Investments (NS&I) accounts (this is different to interest on National Savings & Investment Certificates, which are exempt)
- Government stocks
The Personal Savings Allowances explained:
This allowance is an amount you can receive before HMRC start imposing income tax on your savings interest received. HMRC have different saving allowances depending on your income from other sources such as employment income:
£5,000 starting rate band – where taxable non-savings income (employment) is less than £5,000 interest income is taxed at a starting rate of 0% until taxable income reaches £5,000.
£1,000 basic rate band – where taxable non savings income exceeds £17,570 and doesn’t exceed £37,700, interest income is taxed at 0% up until £1000. It is then taxed at 20% thereafter.
£500 higher rate band – where taxable non savings income exceeds £37,700 and doesn’t exceed £125,140, interest income is taxed at 0% up until £500 It is then taxed at 40% thereafter.
Any individual with taxable non savings income exceeding £125,140 won’t be entitled to any allowances, any interest received will be taxed at the additional rate of 45%.
As you can see it’s a complicated area and the interaction of your savings income and other types of income will impact whether you have to pay tax directly on your bank and building society interest.
With some interest rates now above 5% on term and notice accounts, individuals with savings amounting to just £10,000 to £20,000 will be affected.
Are you one of the 1.8 million UK savers that owe HMRC?
Get in touch if you need us to review your personal tax position on savings income – don’t leave it too late to assess how much you owe HMRC.
Contact Thomas Roberts at :Thomas.email@example.com OR ring 01484 690730