UK households holding savings accounts with balances as low as £3,500 may soon receive tax-related letters from HM Revenue and Customs (HMRC), according to personal finance expert Grant Hamill of Companion Accountancy. HMRC is currently contacting nearly 900,000 account holders who may have earned untaxed interest exceeding their Personal Savings Allowance.
Hamill explained, “HMRC is reviewing instances of untaxed interest and is reaching out to those affected. If you receive a letter, don’t be alarmed. It’s a prompt to verify your tax records and ensure compliance.”
The Personal Savings Allowance lets individuals earn a certain amount of interest tax-free each year. For basic rate taxpayers earning less than £50,270, the allowance is £1,000. For higher earners between £50,271 and £125,000, this reduces to £500. Individuals earning over £125,000 do not receive any Personal Savings Allowance.
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Because of these thresholds, having just £3,500 in some savings accounts could push your interest earnings beyond your allowance, triggering tax liability. If you fall into this category, HMRC may adjust your tax code to collect any owed tax automatically.
These HMRC letters serve as requests for clarification rather than penalties. Hamill emphasizes, “They remind taxpayers to report all taxable income, including interest, via Self Assessment tax returns if necessary. Many people unfamiliar with submitting returns may find this surprising, but reporting untaxed interest is mandatory.”
If you receive income above your Personal Savings Allowance that hasn’t been taxed, you might need to register for Self Assessment to declare it properly. Staying informed and responding to HMRC communications promptly can help you avoid unexpected liabilities.