HMRC has issued some guidance around a tax you may have to pay. The clarification came after a question from a taxpayer who wanted to know if they were liable for a tax bill.
Messaging over social media, the person asked if their interest earnings from their current account in the 2024/2025 tax year would attract a tax bill. They asked: “I have not paid tax for them, am I in trouble?”
They explained they had earned around £60 in interest over the year which they had not declared. They said they had just realised this after looking at their bank statement for the previous year.
HMRC said in response: “If you’re employed or receiving a pension, £60 interest for 2024.2025 is below the tax‑free savings allowance, so there’s no tax to pay and nothing you need to do. Banks report interest to us automatically.”
Government guidance
They also directed the person to information on the Government website about tax on savings interest. People on the basic rate for income tax can earn up to £1,000 in interest each tax year without paying tax on this amount.
There is also a starter rate for savings of £5,000, which is reduced by £1 for every £1 you earn above the £12,570 personal allowance. This means once your income reaches £17,250 a year, you get no starter rate.
Those on the higher rate for income tax get a £500 allowance while those on the additional rate get zero allowance and pay tax on all their interest earnings.
It’s worth bearing in mind that you can build up your savings entirely tax-free through ISAs. You can deposit up to £20,000 a year into cash ISAs and stocks and shares ISAs, dividing the allowance as you choose.
Changes to tax on savings
There are some key changes to note coming in from April 2027. From this date, the ISA allowance will effectively be reduced for cash ISAs, so you can only use up to £12,000 for cash deposits.
The remaining £8,000 allowance will have to be used for investment-based accounts. Another key change from April 2027 is that the rate you pay on your taxable interest earnings is increasing.
All the rates are going up by two percentage points. This will lift the rate for basic rate taxpayers from 20 percent to 22 percent and for higher rate taxpayers from 40 percent to 42 percent.
Those on the additional rate will see their rate increase from the current 45 percent up to 47 percent.