Thousands of British savers are set to receive letters from HM Revenue & Customs (HMRC) following a new tax rule affecting interest earnings. The changes impact those who have exceeded their savings allowance, potentially leading to unexpected tax bills.
What’s Changing with Savings Tax?
Most UK taxpayers can earn interest on savings tax-free up to a certain limit. However, HMRC is now adjusting tax codes for individuals who have surpassed their allowance.
Key Allowances Affected:
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Personal Savings Allowance (PSA) – Up to £1,000 for basic-rate taxpayers (£500 for higher-rate earners).
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Starting Rate for Savings – Allows an additional £5,000 tax-free interest if total income is below £17,570.
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Personal Allowance – The standard £12,570 tax-free threshold can also cover savings interest if unused elsewhere.
According to BBC News, those earning over £17,570 from wages or pensions lose the starting rate, meaning more of their savings interest could be taxable.
Why Are Tax Codes Changing?
HMRC updates tax codes when:
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You start or stop a job/pension
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Your State Pension amount changes
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You claim Marriage Allowance or tax relief
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Your employer reports changes to benefits
If HMRC doesn’t receive updated income details promptly, you may be placed on an emergency tax code, leading to potential overpayments.
How to Check Your Tax Code
Savers can use HMRC’s Check Your Income Tax service to:
✔ Verify if their tax code has changed
✔ Understand why adjustments were made
✔ Avoid unexpected tax bills later
What Should Savers Do Now?
Financial experts, including those at MoneySavingExpert, advise:
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Review your tax code as soon as possible
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Check bank interest statements to see if you’ve exceeded allowances
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Contact HMRC if you believe your code is incorrect
Potential Impact
Those affected may see:
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Higher tax deductions from wages/pensions
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Retrospective tax bills if underpaid
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Refunds if overcharged (via P800 tax calculations)
Final Warning
With HMRC’s new enforcement, ignoring tax letters could lead to penalties. Proactive checking now prevents nasty surprises later.
For further guidance, visit GOV.UK or consult a tax advisor.
