Confusion on savings interest – HMRC weighs in

HM Revenue & Customs (HMRC) has clarified that if your earnings from interest exceed £10,000, you need to register for self-assessment.

This clarification came when a customer reached out to the tax authority on X to see if they needed to file a tax return after earning more than £2,000 in interest.

HMRC explained that if interest exceeds £10,000, a Self-Assessment tax return should be prepared and submitted within the usual deadlines, to calculate whether any tax is due.

Tax-free options for saving

Interest earned from individual savings accounts (ISAs) and some National Savings Investments (NS&I) accounts is tax-free.

Taxpayers can save £20,000 annually in ISAs without paying tax on the income or capital gains generated.

It may also be possible to benefit from the Personal Savings Allowance (PSA) which, depending on your marginal rate, allows you to earn the following amounts of interest before you pay tax :

Income Tax band Personal Savings Allowance
Basic rate £1,000
Higher rate £500
Additional rate £0

If the above allowances are exceeded, you are liable to pay tax on any interest over the allowance at your marginal rate. If you are not required to register for self-assessment, you should ensure that you notify HMRC of the interest that you have earned so that they can ensure that you pay the correct amount of tax.

Get in touch if you need further clarity or guidance on whether you need to pay tax on savings interest.