State Pensioners Urgent Alert: UK people who earn £3,500 or more in savings to receive imminent HMRC tax bill

If you’ve been building up your savings, here’s a heads-up: you may now owe tax on your savings interest—even if you never had to pay it before. With rising interest rates over the past few years, it’s now much easier to go over the Personal Savings Allowance (PSA) and trigger a tax bill.

HMRC has started looking into savings interest earned in the new tax year, and even savers with pots as small as £3,500 may receive a tax letter.

Here’s everything you need to know to avoid a surprise from HMRC.

What Is the Personal Savings Allowance (PSA)?

The PSA is the amount of savings interest you can earn each year without paying tax. It depends on your income tax band:

• Basic rate taxpayers (earning £12,571 to £50,270/year): Can earn up to £1,000 tax-free in interest
• Higher rate taxpayers (£50,271 to £125,140/year): Get a lower allowance of £500
• Additional rate taxpayers (earning above £125,140/year): No tax-free savings allowance

Any interest you earn over your allowance is taxed at your standard income tax rate—20% for basic rate, 40% for higher rate, and 45% for additional rate taxpayers.

How Much Do You Need to Save Before Paying Tax?

With interest rates higher than they’ve been in years, even modest savings could put you over the limit.

According to Money Saving Expert (MSE):

• Basic rate taxpayers need around £20,000 in a top easy-access account to hit the £1,000 PSA
• Higher rate taxpayers only need around £10,000 to exceed the £500 limit
• If you use a fixed-rate savings account, the limit is lower
  • Why? Because the full interest amount is taxed in the year it’s paid, even if the account was locked away for 2–3 years

For example:

• A higher rate taxpayer with £3,500 saved on a 3-year fixed rate at 5% will exceed the £500 PSA
• A basic rate taxpayer would need around £7,000 on the same terms

2.4 Million Accounts Set to Mature – Could Yours Be One?

Earlier this year, Paragon Bank said that 2.4 million fixed-rate non-ISA savings accounts were due to mature within three months. Of these, around 887,000 accounts had earned enough interest to incur tax.

Paragon’s savings director Derek Sprawling warned that many savers may not be able to get the same high rate when they reinvest, and encouraged people to consider using tax-free ISA allowances to shield future savings interest from tax.

How and When Will You Know If You Owe Tax?

The tax year started on 6 April 2024, and HMRC is now reviewing savings interest for the 2024/25 tax year.

• Banks and building societies report how much interest you’ve earned to HMRC
• HMRC will then calculate whether you owe tax
• If you do, you’ll receive either a P800 letter or a Simple Assessment

Repayment usually happens via your tax code—your personal allowance is adjusted so you pay more tax through PAYE if you’re employed.

Want to Check Early?

• Log in to your Personal Tax Account on GOV.UK to estimate your tax
• Ask your bank or building society for an annual interest statement
• Some banks now highlight taxable interest separately

With interest rates up and savings growing, more people are now at risk of going over their Personal Savings Allowance. You don’t pay tax on your savings pot itself—but the interest it earns can be taxable, especially with fixed-rate accounts that pay out in a lump sum.

If you’ve got savings of £3,500 or more in a fixed-rate account, or £10,000+ in an easy-access account, it’s worth checking now. You could owe tax, and HMRC may adjust your tax code to collect it.

To stay ahead:

• Review your bank statements
• Use your ISA allowance to protect future interest
• Keep your Personal Tax Account up to date

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