Do you know what your Personal Savings Allowance is?
While most taxpayers in the UK will know the thresholds for Income Tax, a worrying few know the way in which personal savings can be subject to tax.
With ISAs set for a significant overhaul, understanding the less tax-efficient saving options will soon be more important.
How much tax do you pay on your savings?
While your savings are not taxed, any interest generated by those savings could be subject to tax if it exceeds your Personal Savings Allowance.
Depending on the rate of Income Tax you pay, your Personal Savings Allowance will differ.
The thresholds are:
- £1,000 for Basic-rate taxpayers
- £500 for Higher-rate taxpayers
- £0 for Additional-rate taxpayers
ISAs remain the more tax-efficient saving strategy as the interest generated from them is tax-free.
It is therefore most effective to utilise the full £20,000 saving limit for an ISA as early in the tax year as possible to benefit the most from the accumulation of interest.
How should tax on savings be managed?
The main issue is that tax on savings is often overlooked, resulting in HMRC taking action for underpaid taxes.
This will often manifest in a charge through PAYE, as employees are more likely to overlook this obligation.
Those filing Self Assessment tax returns should already be declaring interest earned, so any compliance issue in that group points to a wider problem with handling tax obligations.
When attempting to make the most of saving strategies, it is best to seek professional financial advice.
This will be more important if the saving limit for Cash ISAs falls to £12,000 for under-65s in 2027 as proposed, leaving younger savers to have to find new ways to grow their wealth.
Our professional team can help you to determine an effective saving strategy that suits your financial goals while helping you to be mindful of the tax obligations that you may face.
We do not want to see anyone caught off-guard by an unexpected tax bill and understanding your exposure is vital for preventing this.
Get in touch with our team to regain confidence in your saving strategy.
