Do I owe tax on my savings income?
With interest rates gradually increasing HMRC have predicted that more people are likely to owe tax on their savings this year, compared to those in previous years.
The Personal Savings Allowance has protected many people from paying tax on their savings interest in recent years but with interest rates rising and the allowance remaining unchanged since its introduction 8 years ago the number of savers will be facing a potential tax bill has increased substantially.
The Personal Savings Allowance (PSA) remains at £1000 per annum for basic rate tax payers, £500 for higher rate taxpayers reducing to nil for additional rate tax payers. Having a little over £19300 in one of the highest interest paying accounts could take you over the PSA if you are a basic rate tax payer (around £9700 if you are a higher rate tax payer).
If you hold longer term bonds the interest may be paid at the end of the term (when it matures) so the interest will be rolled up for the fixed term and it will all count towards your PSA in the year the bond matures.
What happens if I have a liability?
Banks and building societies report how much interest you earn to HMRC each year so they will know if you have tax to pay. If you are employed or receive an occupational pension HMRC will calculate the tax you owe and adjust your notice of coding accordingly so you do not need to take any further action.
If you are self employed or are required to complete a self assessment return you need to declare any interest you have earned.
Are there tax-free alternatives?
You may want to consider investing in an Individual Savings Account (ISA) which provide a tax-free way to save and invest. There are many ISA’s available and you can deposit up to £20,000 per tax year. Contact an Independent Financial Advisor for specific investment advise.