Martin Lewis warning to people with £10,000 in savings - you could owe this tax

Money expert Martin Lewis has issued a warning to Brits with savings as they could be hit with a hefty tax bill. More specifically, the finance guru said people who have £10,000 in savings could face losing money to tax.

This is due to the lucrative interest rates currently on the market. Speaking on his latest ITV show, The Martin Lewis Money Show Live, he revealed that the situation around tax on savings “really has changed very much” in the last few years.

As reported by Express.co.uk, savings account interest rates have soared from around one percent to around five percent. While this may seem like a win for savers, it is a double-edged sword as it means more people who have savings are eligible to start paying tax on the interest generated.

He explained that a basic rate taxpayer with £20,000 in savings could owe tax within just 12 months, and that a higher rate taxpayer - someone earning £50,270 a year - could owe tax on just £10,000 of saving. “So look, savings tax is back for many,” he said. “When you get interest on your savings, it is eligible for income tax. It counts as income.”

Luckily most people can earn up to £1,000 a year interest without needing to pay tax. He continued: “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 percent figure, as a basic rate taxpayer if you have over £20,000 in savings at five percent, 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 percent, 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.”