Building society issues warning if your savings are over this threshold | Personal Finance | Finance
Many people don’t understand how tax on savings works (Image: Getty)
A building society has urged savers to read over the rules, or they could get a surprise tax bill. Research from Leeds Building Society has found that many people don’t understand the rules around tax on savings.
Now is a good time to refresh your memory on the rules, as the tax applied to savings income is to increase by two percentage points, across all bands, from April 2027. This means basic rate taxpayers will pay 22 percent on any taxable interest earnings, up from 20 percent, while for the higher rate it will go up from 40 percent to 42 percent, and for those on the additional rate, the tax rate will rise from 45 percent to 47 percent.
The survey by the building society found that a quarter of people don’t understand the personal savings allowance. The allowance mandates that basic rate taxpayers can earn £1,000 a year in interest without paying tax, with the allowance reducing to £500 for higher rate taxpayers, while additional rate taxpayers get no allowance.
Read more: HMRC confirms date for state pension tax change
Read more: DWP explains Universal Credit change and how it will apply to ‘all benefits’
Catherine Wray, senior savings manager at Leeds Building Society, said: “Understanding personal savings allowances and savings tax requirements can be difficult. There is a notable proportion of savers, almost one in ten, who are not confident in their understanding of personal savings allowances and are likely to require additional support.
“That’s why we would encourage anyone who is confused about their own savings allowance to pop into one of our branches to speak to a colleague about reviewing their savings, or to read up about the rules and upcoming changes online.”
The group also warned that savers may be closer to being slapped with a tax bill than they think. The building society said that with the top easy access account currently paying 4.5 percent, a basic rate taxpayer will use up their allowance if they have just over £22,000 in savings.
If you had £22,000 in savings in an account paying 4.5 percent, you would earn £990 a year in interest, only £10 away from using up all the allowance. Ms Wray said the building society is keen to help people better understand their finances.
She said: “We want to help people to become more financially resilient. That means encouraging good savings habits and helping people to understand the best options to suit their individual circumstances.”
Another change affecting savers coming in from April 2027 concerns ISAs. Under current rules, you can deposit up to £20,000 a year into the tax-free accounts, and divide this allowance as you choose between cash ISAs and stocks and shares ISAs.
But this allowance is being slashed, so you can only deposit up to £12,000 a year as you choose while the remaining £8,000 has to be used for stocks and shares accounts.
For the latest money saving tips, shopping and consumer news, go to the new Everything Money website.
