Brits could be ‘sleepwalking into an avoidable tax bill’ | Personal Finance | Finance
Two in five (41 percent) savers think they don’t earn enough in interest to pay tax on their savings accounts, new research has found.
One in ten (9 percent) savers who have more than £20k+ in non-ISA savings accounts don’t believe they have enough in savings to worry about paying tax, according to new research from specialist bank Shawbrook.
If these savers were basic rate taxpayers, a 5 percent interest rate could put them over their Personal Savings Allowance and lead them to an unexpected tax bill.
The Personal Savings Allowance (PSA) is what savers can earn in interest before having to potentially pay tax.
The PSA has seen no changes since it’s introduction in 2016, meaning that taxpayers only have a basic rate allowance of £1,000. For higher rate taxpayers this decreases to £500, and there is no allowance for additional rate taxpayers.
The research found that one in five (20 percent) savers do not know how the tax on their savings is calculated whilst 17 percent have never declared their interest earnt from their savings.
As interest rates remain high, many could earn over the PSA if they don’t take the steps to minimise this through tax-free savings accounts such as ISAs.
This area is espeically confusing for young people engaging with their taxes/personal finances for the first time.
Despite being liable, almost one in five (17 percent) savers said they did not know how much they pay in tax on their savings, and a further 15 percent never know if they need to pay tax on their savings or not.
Adam Thrower, Head of Savings at Shawbrook said: “It’s shocking to know quite how many people could be sleepwalking into an avoidable tax bill by not paying attention to their savings.
“The Personal Savings Allowance has remained frozen since its inception, yet interest rates are much higher now compared to when this came into force, thus unaware savers could find themselves unnecessarily paying tax on their hard earned savings.
“The good news is that making use of ISAs is an easy way to reduce the tax burden. ISA accounts have a limit of £20,000 per tax year which for a couple means they could be saving up to £40,000 tax-free each year if they both open an ISA account.
“With the new tax year only just beginning, now is the time to start your year of savings right. Interest rates on ISAs remain high and there are accounts suited for everyone, from easy access to longer-term fixed-rate ISAs.
“However, the window of opportunity to secure a high-interest rate ismay be closing as we await the Bank of England’s expected base rate cut in the summer.”
