HMRC has begun issuing surprise tax demand letters to British savers, with experts warning that those with just £3,500 in savings could face unexpected bills. The tax authority is cracking down on unpaid savings interest tax as the new financial year begins.
Why Are People Receiving Tax Demands?
HMRC’s sophisticated systems automatically track interest earned across bank accounts (excluding Cash ISAs). With banks legally required to report this data, many savers are now discovering they owe tax on interest payments received during 2024-25.
Key Triggers for Tax Bills:
Savings over £3,500 in fixed-term accounts (where interest is paid as a lump sum)
Interest exceeding Personal Savings Allowance (PSA) limits
Failure to register for Self Assessment when required
Personal Savings Allowance Explained
Your tax-free allowance depends on income:
Income Band Tax-Free Savings Allowance
Below £50,270 £1,000 interest tax-free
£50,271-£125,000 £500 tax-free
Over £125,000 £0 allowance
Source: Gov.uk official guidance
How £3,500 Savings Could Trigger a Bill
Fixed-rate accounts pose particular risks because:
Interest is taxable when paid, not over the account term
A £3,500 deposit at 5% generates £525 interest after 3 years – potentially exceeding allowances if combined with other savings
Example Case:
*A basic-rate taxpayer with £10,000 across savings accounts earning 4% would generate £400 interest – safely under the £1,000 allowance. But adding a maturing 3-year fixed account could push them over the limit.*