Martin Lewis gives tax charge alert to anyone with £10,000 in savings

Financial guru has issued a warning to Britons harbouring savings, as they may be hit with a significant tax demand due to the current interest rates offered by banks

Renowned money-saving guru Martin Lewis has issued a warning to Britons with savings, cautioning that they could be hit with a hefty tax bill. He specifically warned those with £10,000 saved that they might end up owing money to the taxman due to the current interest rates offered by banks.

Speaking on The Martin Lewis Money Show Live on ITV, he noted that the tax landscape for savings "really has changed very much" in recent years, attributing this shift to the rise in savings account interest rates from about one per cent to roughly five per cent. While this increase may seem beneficial for savers, it also means more individuals will have their savings interest subject to tax.

As reported by Express.co.uk, Lewis explained that a basic rate taxpayer with £20,000 in savings could owe tax within 12 months. Moreover, a higher rate taxpayer, someone earning £50,270 a year, could be liable for tax with just £10,000 in savings. "So look, savings tax is back for many," he declared.

"When you get interest on your savings, it is eligible for income tax. It counts as income." Fortunately, most people can earn up to £1,000 a year in interest without having to pay tax. He added: "But you get a Personal Savings Allowance. What this means is a basic rate taxpayer can earn £1,000 a year of interest and you don’t pay tax on it."

"It can be in any form of savings account that you like. As a higher 40 percent taxpayer, you can earn £500, as a top 45 percent taxpayer if you earn over £125,000 a year you don’t get one of these."

"So what does that mean in practice? So if you take that top five per cent figure, as a basic rate taxpayer if you have over £20,000 in savings at five per cent, you would earn more than a grand of interest so everything above that would be taxed."

"As a higher rate taxpayer it’s £10,000. So for those people saving £100, £1,000, £2,000, it’s irrelevant to you if you’re a basic rate or higher rate taxpayer. For those people who’ve got savings that get into the tens of thousands of pounds, tax starts to become more important."

"And the reason it’s come back is, when interest rates are one per cent, to earn £1,000 of interest you needed a hell of a lot in savings. Now they’re five percent, you need a fifth of it, so it really has changed very much."