Overview
- Savers are being assessed as HMRC reviews bank-reported interest for the last tax year and moves to recover underpaid tax with demand letters and tax-code changes.
- Under the Personal Savings Allowance, basic-rate taxpayers can earn up to £1,000 in interest tax-free, higher-rate taxpayers get £500, and those on £125,140 or more get no allowance.
- Fixed-rate deals often pay all interest at maturity, which counts in a single tax year and can tip people over their allowance even on modest sums.
- A three-year fixed account paying 5% on £3,500 would produce more than £500 in one payout, which can leave higher-rate earners with a bill at 40% on the excess.
- Even easy-access balances can breach the cap, with £11,000 at 5% generating £550 and £21,000 at 5% generating £1,050, while HMRC typically collects what is owed by adjusting PAYE codes using last year’s interest data; Cash ISAs remain tax-free.