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HMRC tax trap tightens as savings rates hit 5% – ‘won’t realise until too late’ | Personal Finance | Finance


A basic-rate taxpayer who secured a 5 percent return would hit the PSA with just £20,000 of savings, falling to £10,000 for a higher-rate taxpayer.

Former Chancellor Rishi Sunak’s decision to freeze income tax thresholds for five years only adds to the danger.

This can push hundreds of thousands into a better rate tax bracket, at which point their PSA will shrink or disappear altogether.

Government figures forecast a 44 percent leap within the number of individuals within the higher-rate tax band and a 50 percent increase in those hitting the extra rate band.

The chance of reaching the PSA will proceed to grow, says Andrew Hagger, savings expert at MoneyComms.co.uk. “As rates rise, more will suddenly face an unexpected tax bill, unless they take motion.”

Anyone who thinks they’ll breach the allowance should consider move their savings right into a tax-free money Isa, Hagger added. “Every UK adult will pay as much as £20,000 into an Isa every year, so a pair can shelter £40,000 between them.”

Money Isas have fallen out of favour but may soon come back into fashion.

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