Thousands of savers across the UK have recently received unexpected correspondence from HM Revenue and Customs (HMRC) regarding untaxed interest on their savings.
These HMRC savings account tax letters have sparked concern and confusion among recipients who may be unaware that the interest earned from their savings accounts could be subject to tax.
Here’s a comprehensive breakdown of what these letters are, why they’re being sent, and what steps you should take if one lands through your letterbox.
What Are HMRC Savings Account Tax Letters?
HMRC savings account tax letters are official notices sent by the UK tax authority to individuals who may owe income tax on the interest earned from their savings.
These letters generally inform the recipient that their bank or building society has reported untaxed interest from one or more savings accounts, and that they may be liable to pay additional tax.
The notice may also indicate how much interest was earned and the estimated tax due based on the individual’s personal allowance and income tax band.
Why Are These Letters Being Sent Now?
The letters are part of a broader compliance campaign aimed at ensuring individuals are correctly declaring all taxable income, including interest from savings accounts held outside tax-free wrappers such as ISAs.
HMRC receives information from banks and financial institutions each year detailing how much interest individuals have earned.
Using this data, HMRC cross-checks whether that interest has been taxed correctly or reported in self-assessment returns.
Where discrepancies are found, a letter is issued.
With savings rates having increased significantly over the past 18 months, many people are now earning more interest than they did previously—some even exceeding the personal savings allowance.
This shift has caught some savers off guard.
Understanding the Personal Savings Allowance
One reason many people are surprised by HMRC savings account tax letters is the assumption that all savings interest is tax-free.
While savings within ISAs are indeed exempt, interest earned on standard savings accounts may be taxable depending on your income level.
Under the current rules:
- Basic rate taxpayers (earning up to £50,270) can earn up to £1,000 in interest tax-free.
- Higher rate taxpayers (earning between £50,271 and £125,140) have a £500 allowance.
- Additional rate taxpayers (earning over £125,140) have no personal savings allowance.
If your interest income goes over these thresholds, you are expected to pay tax on the excess.
What Should You Do If You Receive One?
If you receive one of these HMRC savings account tax letters, the first thing to do is not panic.
Review the letter carefully and compare the figures with your own financial records.
HMRC will often list the total amount of untaxed interest and the accounts it came from.
You may also receive a calculation of the estimated tax owed.
If you believe the information is correct, you can usually pay the tax due either through a simple online form or through your PAYE tax code adjustment.
In some cases, especially if large amounts are involved or if you are self-employed, you may need to file a self-assessment tax return.
If you think the information in the letter is incorrect, contact HMRC as soon as possible.
You’ll need to provide documentation or bank statements to support your case.
Ignoring the letter or failing to respond could result in further action or penalties.
Who Is Most Likely to Receive a Letter?
Not everyone with a savings account will receive a letter.
Those most likely to be contacted include:
- Higher-rate and additional-rate taxpayers
- Individuals with large savings balances in non-ISA accounts
- Those who have recently moved money into high-interest accounts
- People who previously received minimal interest but now exceed the allowance due to rate increases
It’s worth noting that even people with modest savings could be affected if their income puts them in a higher tax band or if they hold multiple accounts across different banks.
Common Reasons for Confusion
There are several factors that can lead to misunderstandings when people receive HMRC savings account tax letters.
Firstly, many assume that banks automatically deduct tax from interest payments—this has not been the case since the introduction of the Personal Savings Allowance in 2016.
Secondly, people may forget about dormant or rarely-used accounts that still accrue interest.
Thirdly, joint accounts can sometimes cause confusion, especially when only one account holder receives a letter.
Lastly, some savers mistakenly believe that if their total interest is under £1,000, it doesn’t need to be reported—this is only true if they are basic rate taxpayers and the allowance hasn’t already been used.
How to Avoid Future Surprises
To avoid being caught out by future HMRC savings account tax letters, consider the following steps:
- Track your interest across all accounts throughout the tax year.
- Use tax-free wrappers like ISAs wherever possible.
- Check your tax code to ensure it reflects any savings income.
- If your savings interest is likely to exceed your allowance, consider filing a self-assessment return proactively.
- Speak to a financial adviser or accountant if you’re unsure of your tax position.
Final Thoughts
Receiving an HMRC letter about unpaid savings tax can be unsettling, but it doesn’t necessarily mean you’ve done anything wrong.
The tax system has evolved in recent years, and rising interest rates have brought more people into scope for savings tax than before.
The key is to understand your personal allowance, monitor your accounts regularly, and respond promptly if HMRC contacts you.
Being proactive about your savings income will help ensure you’re always in compliance and won’t face unexpected tax bills in the future.