2 weeks ago
£12,500 in Savings Can Now Trigger UK Tax Bill
In the UK, when you put money in a savings account, the bank pays you extra money called interest.
Normally, a small amount of this interest is yours to keep without paying tax.
The government set how much interest can be tax-free back in 2016, and that amount has not changed since then.
But banks are now paying much more interest than they used to.
Because of this, more people are earning enough interest to have to pay tax on it.
Even someone with about £12,500 saved could cross the limit if they pay the higher tax rate.
The number of savings accounts that could be affected has grown from about 462,000 in 2018 to 5.3 million now.
Many people do not know about this rule at all.
Money kept in an ISA is usually protected from this tax.
This change affects ordinary people saving for things like a house, not just the very rich.
An estimated 5.3 million non-ISA savings accounts could now generate enough interest to trigger tax, more than 11 times the 462,000 recorded in January 2018.
Higher-rate taxpayers earning over £50,000 can earn only £500 in savings interest before tax applies, while basic-rate taxpayers get a £1,000 allowance.
With savings rates around 4 per cent, roughly £12,500 saved could reach a higher-rate taxpayer's threshold, while basic-rate taxpayers would need about £25,000.
Yorkshire Building Society analysis shows accounts projected to exceed £1,000 interest rose from 172,000 in January 2022 to 2.5 million by January 2023.
Tax liability on savings income for over-65s is forecast to reach £3.34 billion in 2026/27, up from £795 million four years earlier, according to a Paragon FOI request to HMRC.
A survey cited by Yorkshire Building Society found 36 per cent of people had never heard of the Personal Savings Allowance, and only 31 per cent knew how to pay the tax if they exceeded it.
- Who
- British savers, particularly higher-rate taxpayers earning more than £50,000 and people aged 65 and over.
- What
- Rising savings interest rates combined with a frozen Personal Savings Allowance mean millions more non-ISA savings accounts could trigger tax on interest earned.
- Where
- United Kingdom.
- When
- Analysis reflecting current conditions, compared with figures from January 2018 through 2023, with forecasts for 2026/27.
- Why
- With savings rates around 4 per cent and the Personal Savings Allowance unchanged since 2016, smaller savings balances now generate taxable interest.
Key facts
- Potentially affected accounts
- 5.3 million non-ISA savings accounts
- Affected accounts in January 2018
- 462,000
- Higher-rate taxpayer allowance
- £500 of tax-free savings interest
- Basic-rate taxpayer allowance
- £1,000 of tax-free savings interest
- Savings threshold for higher-rate taxpayer at 4%
- Around £12,500
- Savings threshold for basic-rate taxpayer at 4%
- Around £25,000
- Over-65s savings tax liability forecast 2026/27
- £3.34 billion, vs £795 million four years earlier
- Median house deposit
- Around £36,500
Quotes
Tina Hughes
Yorkshire Building Society savings director
“The shift reflected the combination of higher interest rates and a frozen allowance, rather than people suddenly becoming wealthy.”
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