Choose an Isa to avoid paying tax on your saving
Savers could face a tax bill if they hold more than £11,000 in a high paying savings account unless they choose an Isa
Savers can get a tax bill if they have more than £11,000 in a high paying savings account.
Depositors who are basic taxpayers can earn up to £1,000 in interest before paying tax.
Higher rate taxpayers have their personal savings deduction cut in half to £500.
Growth: Savers can avoid paying interest tax altogether by opening a Private Savings Account
Until recently, interest rates were so low that this fee was more than enough to spare most savers from paying any tax.
But as rates have gone up, it’s easy to get caught. For example, an Al Rayan Bank savings account is currently one of the most generous available, offering 4.62 percent if you tie up your money for two years.
A base rate taxpayer would incur a tax bill if they deposit more than £23,000 into this account.
A higher rate taxpayer would only have to pay £11,000 to breach their allowance. Those liable for supplements have no personal allowance at all and therefore pay tax on all their savings.
However, savers can avoid paying tax on interest altogether by opening an Individual Savings Account (ISA).
These are much like other types of savings accounts, except that all interest earned is completely tax-free.