If you have been earning interest on your savings, you might be wondering whether you need to pay tax on it. HM Revenue & Customs (HMRC) recently clarified that tax may apply if your interest earnings exceed £10,000, depending on the type of account.
This came after a taxpayer asked HMRC on social media whether they needed to file a tax return after earning over £2,000 in interest.
The response? If your total interest goes beyond £10,000, you must complete a Self-Assessment tax return to determine whether any tax is due.
How to save tax-free
Not all savings interest is taxed. Certain accounts allow you to earn interest without paying tax, including:
The Personal Savings Allowance (PSA)
Most savers also benefit from the Personal Savings Allowance (PSA), which lets you earn a certain amount of interest before tax applies, based on your tax band:
This means if you are a basic rate taxpayer, you can earn up to £1,000 of interest tax-free. If you are in the higher rate band, that figure drops to £500, and additional rate taxpayers get no allowance at all.
Avoiding unexpected tax bills
To stay on top of your tax obligations, it is important to:
If you are unsure whether you need to file a tax return or how to maximise your tax-free savings, getting expert advice can help.
Need clarity on your savings interest? Get in touch with us today.
