Savers could face tax bill if they have over £11,000 in a top-paying savings account, unless they choose an Isa
Savers could face a tax bill if they have more than £11,000 in a top-paying savings account.
Savers who are basic-rate taxpayers can earn up to £1,000 in interest before they have to pay tax.
Higher-rate taxpayers have their personal savings allowance slashed in half to £500.
Growth: Savers can escape paying tax on interest altogether by opening an Individual Savings Account
Until recently, interest rates were so low that this allowance was more than enough to shield most savers from paying any tax.
But as rates have risen, it’s easy to be caught out. For example, a savings account from Al Rayan Bank is currently one of the most generous available, offering 4.62 per cent if you lock your money away for two years.
A basic-rate taxpayer would incur a tax bill if they put more than £23,000 into this account.
A higher-rate taxpayer would only have to pay in £11,000 to breach their allowance. Additional rate taxpayers have no personal savings allowance at all so pay tax on all their savings.
However, savers can escape paying tax on interest altogether by opening an Individual Savings Account (Isa).
These are much like other types of savings account, except all interest earned is completely tax free.
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