Martin Lewis has issued a warning today to people with savings as he explained how people could incur taxes on cash they’ve squirrelled away. In a new post on X the personal finance guru said anyone earning between £12,500 and £50,000 a year could fall foul of the personal savings allowance limit if they’ve got money stashed away.
Mr Lewis was speaking out about savings and how people can pay less tax legally and morally through legitimate government schemes. He explained that people don’t pay tax on their actual savings – rather it’s on the interest they gain on them.
He explained that people who already pay tax will also get taxed on their savings interest if it goes above a certain level. He said: “Talking about those people who are generally paying tax, the most important thing to understand is you will probably have a personal savings allowance. This is a special amount of savings interest that you can earn each year, which isn’t taxed. Now if you’re a basic rate taxpayer, a 20% rate taxpayer, which is generally someone earning between about £12,500 and £50,000 a year, then your personal savings allowance is £1,000.
“That means you can earn £1000 of interest from any legitimate UK sources and you do not have to pay tax on it.” Mr Lewis said that currently the top paying easy access account gives about 5 per cent interest. He added: “So how much would you have to have in there to earn a grand’s worth of interest? About £20,000.
“So if you’ve got £20,000 or less in savings and you’re a basic rate taxpayer, it is very unlikely that your savings interest would be taxed, so you don’t have to pay anything so you can get on with it.
“If you’re a higher 40% rate taxpayer, which is someone earning over around £50,000 up to about £125,000, then your personal savings allowance is £500 a year.”
Mr Lewis explained that in a top easy access account it means £10,000 in savings would incur the tax. He added: “If you are a top rate taxpayer, so earning over £125,000 a year, you do not get a personal savings allowance. So all of your savings interest is taxed.”