13 August 2024
With recent interest rate rises, many people are having to pay tax on their savings interest for the first time.
If you are a basic rate (20%) taxpayer, you can earn up to £1,000 of interest tax-free. If you are a higher rate (40%) taxpayer, this amount falls to £500, and for additional rate (45%) taxpayers, all interest is taxable.
You may also be entitled to a further tax-free starting rate band for savings of up to £5,000 if your “other income” (e.g. wages or pensions) is less than £12,570. The £5,000 starting rate band is reduced by £1 for every £1 of “other income” above £12,570.
All interest you receive (except for interest earned in ISAs) must be declared on your tax return if you file one and any tax due will form part of your self-assessment tax bill.
If you don’t already file a tax return, then you must register with HMRC and file a return if your total investment income (which includes interest AND dividends) exceeds £10,000.
Otherwise, you don’t need to take any action, and HMRC should write to you if they think you have tax to pay on your interest. They may adjust your tax code to collect the tax if you are employed or have a pension.
If you have any queries about declaring and paying tax on your interest, please get in touch here.
