Martin Lewis has urged households to make full use of four tax‑free allowances that together can shield up to £38,570 from tax each year.
Speaking on The Martin Lewis Show Live on ITV1 and ITVX on March 17, the consumer champion explained how savers can legally maximise their tax‑free income by combining several HMRC allowances.
“Are you using all four of your Savings Interest Tax Allowances?” he asked viewers, before breaking down how each one works.
The first is the Personal Allowance, which lets individuals earn £12,570 a year from any source, wages, rent or savings interest, without paying income tax.
“Most people get that, unless you start earning £100,000 and it starts getting taken away,” Mr Lewis said.
Second is the Starting Rate for Savings, which allows up to £5,000 of savings interest to be earned tax‑free.
It is most relevant for people with low earnings but higher levels of savings.
The allowance tapers away pound‑for‑pound once income exceeds £12,570 and disappears entirely at £17,570.
Martin Lewis has urged households to make full use of four tax‑free allowances
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Martin Lewis
The third is the Personal Savings Allowance, which sits on top of the first two.
Basic‑rate taxpayers can earn £1,000 of savings interest tax‑free each year, while higher‑rate taxpayers receive £500.
Additional‑rate taxpayers earning above £125,000 do not qualify.
With top savings accounts paying around 4.5 per cent, Mr Lewis said basic‑rate taxpayers would need “just a little over £22,000” in savings before exceeding their £1,000 allowance.
Higher‑rate taxpayers would breach their £500 limit with roughly £11,000 saved at similar rates.
Combined, these three allowances protect £18,570 from tax.
Premium Bonds also offer tax-free returns
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NSIThe fourth allowance is the Cash ISA, which allows up to £20,000 to be saved tax‑free each tax year. Crucially, ISA interest does not count towards any of the other allowances.
“It is totally separate from that,” Mr Lewis said. “Does not count towards the Personal Allowance.
Does not count towards the Starting Rate for Savings. Does not count towards the Personal Savings Allowance.”
He also noted that Premium Bonds offer tax‑free returns through monthly prize draws, with a maximum holding limit of £50,000 rather than an annual allowance.
“Those are the main ways you can save without paying tax on them,” Mr Lewis said, warning that with higher interest rates, more savers risk breaching their allowances unless they plan ahead.