Overview

• HMRC is sending warning letters to individuals with £3,500 or more in savings accounts, signaling potential tax liabilities on interest income exceeding allowances.
• Banks automatically report savings interest to HMRC unless funds are held in tax-exempt Cash ISAs, which remain unaffected by these measures.
• The Personal Savings Allowance permits basic-rate taxpayers to earn £1,000 in interest tax-free, but decreases to £500 for higher-rate taxpayers and is eliminated entirely for top earners making £125,000 or more annually.
• Tax owed on interest exceeding the allowance is collected by adjusting tax codes, with higher earners paying up to 40% on the excess amount.
• Fixed-term and easy-access savings accounts can crystallize interest payments, potentially pushing savers over their thresholds and triggering unexpected tax bills.