Bank boss warns of tax trap on savings if interest rates rise
A bank boss has urged savers to be wary of the taxman taking a bite out of their earnings when interest rates rise.
Millions of account holders become taxpayers if their interest income exceeds £1,000 a year – or £500 for higher rate taxpayers.
The limit was less likely to excite savers when interest rates were near zero. But with returns rising, it is expected to bring in much more.
Warning: Paragon chief exec Nigel Terrington (pictured) has urged depositors to be wary of the taxman taking a bite out of their earnings as interest rates rise
Nigel Terrington, CEO of Paragon – which has more than 225,000 direct savings customers – told the Mail: “You’ve had almost zero interest rates for 15 years and now that interest rates are higher, the interest received takes on more meaning.”
Terrington, speaking as Paragon reported half-year results, said the lender was experiencing a ‘bumper’ season for individual savings accounts (ISAs) – which, unlike standard savings accounts, are tax-free on investments up to £20,000 a year, although it does is. do not always offer the best rates.
The mail highlighted how leaving the threshold in place will cause more and more savers to pay taxes.
Terrington said: ‘It’s great that the Daily Mail is encouraging people to make sure they understand their tax positions.’
Seven years ago, when the exemption was first introduced, a basic rate taxpayer would have needed a piggy bank of nearly £70,000 to be held liable.
But now only £20,000 in savings would be needed for the tax to kick in.