HMRC sends letters for ‘first time in decade’ to those earning more than £1k from savings | Personal Finance | Finance

For the first time in over 10 years, thousands are receiving unexpected tax bills from HM Revenue and Customs (HMRC) as interest earnings push them above the Personal Savings Allowance. Rosie Hooper, who has worked in financial services for 25 years, told the i that the surge in interest rates has led to many savers exceeding the £1,000 tax-free threshold, leading the HMRC to write to households to recover unpaid tax. After years of historically low interest rates, the Bank of England’s monetary tightening to tackle inflation has resulted in higher returns on savings accounts.

Some easy-access accounts now offer over 4%, with fixed-rate bonds pushing above 5%. As a result, many savers, including some with relatively modest balances, are now reportedly earning more interest than they have in previous years.

Rosie Hooper, chartered financial planner at Quilter Cheviot Financial Planning, told the i: “For the first time in more than a decade, thousands of savers are finding themselves unexpectedly facing a tax bill.

“Rising interest rates have meant many people earned more in savings interest than they have in years, and in some cases, more than their tax-free allowance permits.”

This rise in income from savings has brought thousands into tax-paying territory, and under the current rules, basic-rate taxpayers can earn up to £1,000 in savings interest tax-free under the Personal Savings Allowance; for higher-rate taxpayers, the allowance goes to £500, and additional-rate taxpayers receive no PSA at all.

Many savers who are employed and taxed via PAYE may not have realised they owe tax on their interest and in the majority of cases, they won’t need to file a tax return, as HMRC usually collects the needed information directly from banks or building societies.

The tax authority then adjusts an individual’s tax code for the following financial year to recover the owed amount gradually through payroll deductions which means many taxpayers will notice a slight decrease in their take-home pay, but won’t face a large, one-off tax bill.

While the system works automatically for most, you should notify HMRC or register for Self Assessment if you earned interest from multiple providers and not all of it was reported, received interest from overseas savings or if your total savings and investment income, including dividends, exceeds £10,000.

Hooper added: ” If you do owe tax and fail to report it or respond to HMRC queries, you could face late payment interest or even a penalty. So it’s worth double-checking your interest earnings for peace of mind.”

“The rise in interest rates has been a welcome break for savers, but it comes with tax consequences that many aren’t used to. For most PAYE earners, there’s no need to panic—but do check what you earned in interest last year. With a bit of attention and some smart planning, you can keep more of your money working for you, without surprises from the taxman.”