A new HMRC savings account tax warning has been issued as rising interest rates are pushing thousands of savers over tax-free thresholds—resulting in unexpected bills and penalties. With personal savings allowances frozen and interest earnings climbing, more taxpayers are now caught in HMRC’s widening tax net.
Why Interest is Creating a Tax Burden
The Bank of England’s base rate hikes have led to much higher savings interest across fixed-rate and easy-access accounts. While savers welcome the gains, many are now finding themselves liable for tax on their interest.
Currently, the Personal Savings Allowance (PSA) remains unchanged:
- £1,000 for basic-rate taxpayers
- £500 for higher-rate taxpayers
- £0 for additional-rate taxpayers
These thresholds haven’t kept pace with inflation or the rising rates of return, meaning even average savers could now earn more than their allowance permits.
How HMRC Finds You
Banks and building societies report your interest to HMRC. If your interest exceeds your PSA, HMRC may adjust your PAYE tax code, send you a P800 letter, or request you complete a Self Assessment tax return.
This automated process has led to a wave of tax adjustments in recent months. Many savers are unaware of the thresholds and are being caught off guard.
Delays and Confusion
P800 letters, which normally arrive in the autumn, were sent out as late as March this year due to processing delays. That lag left many taxpayers unaware of their liability until well into the new financial year, impacting their monthly wages once their tax codes were changed.
Experts warn that the delays in HMRC’s correspondence mean even more people are being hit with unexpected deductions or required to file tax returns for the first time.
2 Million Hit with Interest Tax
It’s estimated that over 2 million UK savers will owe tax on their savings interest for the 2024–25 tax year. In comparison, only 1.4 million were affected the year before. This year alone, over 800,000 taxpayers are being newly drawn into the tax net.
Many savers will owe only modest sums—often less than £100—but if they fail to act or notice HMRC’s correspondence, penalties and interest charges can escalate quickly.
What You Should Do Now
To avoid being caught out by the HMRC savings account tax warning, taxpayers should:
- Track all interest from all accounts
- Compare against your PSA and other allowances
- Be aware of your total taxable income
- Contact HMRC if you believe you’ve crossed a threshold
- Check your PAYE tax code for adjustments
Those with total income under £17,570 may also qualify for the Starting Rate for Savings, which allows up to £5,000 of interest to be earned tax-free. However, this is reduced £1 for every £1 of non-savings income above the personal allowance.
Avoiding the Tax Altogether
For savers looking to avoid future surprises, there are some legitimate strategies:
- Cash ISAs: Save up to £20,000 per year completely tax-free
- Premium Bonds: No tax on prizes, though returns are not guaranteed
- Offset Mortgages: Interest saved is not counted as income
- Pension Contributions: Lower your taxable income and increase savings
These options can help keep you below the tax radar and better align your finances with current HMRC rules.
Don’t Ignore the Warning
The HMRC savings account tax warning is a serious issue for millions of UK savers. With tax-free allowances frozen and interest rates high, staying on top of your savings income is more critical than ever.
Ignoring the issue can result in fines, penalties, and even a formal investigation. Understanding your thresholds and planning ahead will help ensure that your hard-earned interest doesn’t lead to unexpected costs down the road.