Martin Lewis has warned that savers could face unexpected tax bills on their interest earnings if they hold more than £11,000 or £22,000 in savings, depending on their tax bracket.
Speaking on his ITV programme, the MoneySavingExpert founder said rising interest rates mean more people are edging closer to their tax‑free limits.
Mr Lewis explained that the point at which savers begin paying tax on interest depends on their income tax band.
Higher‑rate taxpayers could start incurring tax with savings of around £11,000 at current top rates, while basic‑rate taxpayers would need roughly £22,000 before breaching their allowance.
He used the programme to break down the different savings allowances and how people can structure their finances to avoid unnecessary tax.
He began with the personal allowance, which lets individuals earn up to £12,570 a year from all income sources before paying income tax.
“Most people get that unless you start earning over £100,000 when it’s taken away,” he said.
Mr Lewis also highlighted the lesser‑known starting rate for savings, which allows up to £5,000 of savings interest to be earned tax‑free on top of the personal allowance — but only for those with relatively low other income.
The Money Saving Expert explained how savings allowances work
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Martin Lewis
The allowance tapers away pound‑for‑pound once earnings exceed £12,570 and disappears entirely at £17,570.
He then turned to the Personal Savings Allowance, the rule most savers rely on.
Basic‑rate taxpayers can earn up to £1,000 in savings interest tax‑free each year, while higher‑rate taxpayers can earn up to £500.
With some accounts now paying around 4.5 per cent, Mr Lewis said these thresholds can be reached with relatively modest balances: just over £22,000 for basic‑rate taxpayers and around £11,000 for higher‑rate taxpayers.
Basic‑rate taxpayers can earn up to £1,000 in savings interest tax‑free each year
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GETTY
Additional‑rate taxpayers receive no allowance. “If you’re an additional‑rate taxpayer earning over £125,000, you don’t get one of these,” he said.
Mr Lewis also outlined tax‑efficient options that fall outside these limits.
Individual Savings Accounts allow up to £20,000 to be saved each tax year with no tax due on interest or investment returns.
“It is totally separate from that. So anything you earn in there is not taxable,” he said. ISA interest does not count towards any other savings allowances.
He also pointed to Premium Bonds, which offer tax‑free prizes instead of interest.
They have no annual contribution limit, though individuals can hold no more than £50,000 in total.
Mr Lewis said the warning comes at a time when higher interest rates mean more savers are likely to approach, and potentially exceed, their tax‑free allowances in the coming years.