Martin Lewis, the renowned money-saving expert, has today issued an urgent alert to savers about potential tax implications on their hard-earned cash. In his latest update on X, Lewis highlighted that individuals earning between £12,500 and £50,000 annually could breach the personal savings allowance threshold if they have substantial savings.
The financial whizz was shedding light on how to legally and ethically pay less tax on savings through approved government initiatives. He clarified that taxes are not levied on the savings themselves but on the interest accrued from them.
For taxpayers, he warned that savings interest could be taxed if it exceeds a certain amount. He advised: “Talking about those people who are generally paying tax, the most important thing to understand is you will probably have a personal savings allowance.
“This is a special amount of savings interest that you can earn each year, which isn’t taxed. Now if you’re a basic rate taxpayer, a 20% rate taxpayer, which is generally someone earning between about £12,500 and £50,000 a year, then your personal savings allowance is £1,000.”
“That means you can earn £1000 of interest from any legitimate UK sources and you do not have to pay tax on it.”
Lewis pointed out that with the top easy access accounts offering around 5 per cent interest, one would need approximately £20,000 saved to generate £1,000 in interest.
undefined (Image: Martin Lewis/X)
Martin Lewis, the money saving expert, has some advice for savers when it comes to understanding tax on savings interest. “So if you’ve got £20,000 or less in savings and you’re a basic rate taxpayer, it is very unlikely that your savings interest would be taxed, so you don’t have to pay anything so you can get on with it.”
He explained further for those on higher incomes: “If you’re a higher 40% rate taxpayer, which is someone earning over around £50,000 up to about £125,000, then your personal savings allowance is £500 a year.”
Mr Lewis explained that in a top easy access account it means £10,000 in savings would incur the tax. He added: ” For those earning even more, he stressed: “If you are a top rate taxpayer, so earning over £125,000 a year, you do not get a personal savings allowance. So all of your savings interest is taxed.”
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He said that if people end up taxed through the self-assessment system, they would simply put the total amount of interest that they earn in their tax return.
He added: “If you don’t have a self-assessment return, which many people who are employed and in jobs and aren’t very high earners don’t have to do, well then, as long as you’re earning less than £10,000 of interest a year. You don’t really have to do anything because the banks and building societies are feeding through your savings interest to and it will automatically alter your tax code for you to take into account the tax on savings that you should be paying.”