Wojciech
Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance
Saving money is a smart way to prepare for the future, but it’s important to understand how your savings might affect your tax responsibilities. A common question people ask is: Do I need to declare tax on savings? The answer depends on the type of savings you have and how much interest they earn.
In this article, we’ll explain everything you need to know about declaring tax on savings in the UK. By the end, you’ll have a clear understanding of what you need to do to stay compliant with HMRC while making the most of your hard-earned money.
What Are Savings Taxed On?
In the UK, tax on savings applies to the interest your savings earn, not the amount you deposit. For example, if you put £5,000 in a savings account and it earns £200 in interest over the year, only the £200 is considered taxable income.
Personal Savings Allowance
The good news is that most people don’t need to pay tax on their savings because of the Personal Savings Allowance (PSA).
- Basic rate taxpayers (20%): You can earn up to £1,000 in savings interest each year without paying tax.
- Higher rate taxpayers (40%): Your allowance drops to £500.
- Additional rate taxpayers (45%): You don’t get a PSA, so all your interest is taxable.
If your savings interest stays within your allowance, you don’t need to declare it.
Tax-Free Savings Accounts
Some types of savings accounts are tax-free, such as:
- ISAs (Individual Savings Accounts): The interest earned in an ISA is completely tax-free, regardless of how much you earn.
- Premium Bonds: Any winnings from premium bonds are also tax-free.
These accounts are a great way to grow your savings without worrying about paying tax or reporting interest to HMRC.
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When Do I Need to Declare Tax on Savings?
You need to declare tax on your savings if:
- Your interest exceeds your Personal Savings Allowance.
- You are an additional rate taxpayer with no PSA.
- Your savings are in non-tax-free accounts, and the interest exceeds the allowance.
How to Declare Tax on Savings
If you earn more interest than your Personal Savings Allowance, you’ll need to report it:
- Through PAYE: HMRC usually adjusts your tax code to collect tax on savings automatically if they have the correct information.
- Self-Assessment Tax Return: If you are self-employed or have complex finances, you may need to declare your savings interest through a tax return.
Tips to Minimise Tax on Savings
- Use ISAs: Maximise your annual ISA allowance (£20,000 for the 2024/25 tax year) to shelter your savings from tax.
- Split your savings: If you’re married or in a civil partnership, consider sharing savings to utilise both Personal Savings Allowances.
- Track your interest: Keep an eye on how much interest your accounts are earning throughout the year.
Conclusion
So, do you need to declare tax on savings? For many people, the answer is no, thanks to the Personal Savings Allowance and tax-free accounts like ISAs. However, if your savings interest exceeds your allowance, you must report it to HMRC.
To ensure you’re meeting your obligations, review your savings accounts and interest regularly. If you’re unsure, seek professional advice to stay on top of your tax responsibilities.
By understanding the rules, you can keep your finances in good shape while making the most of your savings.
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