The UK’s tax system is changing, and HM Revenue and Customs (HMRC) has introduced new rules that could affect anyone with savings over £2,500. These changes, set to roll out in 2025, aim to tackle tax avoidance but might hit regular savers harder than expected. If you’ve got money tucked away in a savings account, ISA, or other investments, here’s what you need to know to stay prepared.
Why the Rules Are Changing
HMRC says the new rules are designed to make the tax system fairer. They’re targeting people who use complex schemes to hide their savings or move money offshore. But the catch is, these changes could also affect everyday savers. The government wants to close loopholes that let some avoid paying tax on their savings interest. However, critics argue the rules cast a wide net, potentially pulling in people with modest savings who aren’t trying to dodge taxes.
Who’s Affected by the New Rules
If you’ve got more than £2,500 in savings, you’re likely to feel the impact. The new rules tighten how interest from savings is reported and taxed. Previously, you could earn up to £1,000 in savings interest tax-free under the Personal Savings Allowance (PSA), depending on your income tax band. Now, HMRC is introducing stricter reporting requirements for banks and financial institutions. They’ll have to share more details about your savings with HMRC, which could lead to higher tax bills for some.
Here’s who might be affected:
- Savers with over £2,500 in total savings across accounts.
- People with multiple savings accounts, including ISAs or bonds.
- Anyone earning significant interest, especially higher or additional-rate taxpayers.
How the Changes Could Hit Your Wallet
The biggest worry is that savers might lose a chunk of their interest to tax. For example, if you’re a higher-rate taxpayer with £10,000 in savings earning 4% interest, you could owe tax on anything above the PSA. With the new reporting rules, HMRC will have a clearer view of your savings, making it harder to slip under the radar. Some experts estimate that savers with £20,000 or more could face an extra £200-£500 in tax each year, depending on their tax band.
| Savings Amount | Interest (4%) | Taxable (Higher-Rate, 40%) |
|---|---|---|
| £5,000 | £200 | £0 (within PSA) |
| £10,000 | £400 | £0 (within PSA) |
| £20,000 | £800 | £320 |
What You Can Do to Protect Your Savings
There are ways to soften the blow. First, check if your savings are in tax-free accounts like ISAs, which still offer protection from these rules. You can save up to £20,000 a year in an ISA without paying tax on the interest. Second, spread your savings across different accounts to stay under HMRC’s radar for smaller balances. Finally, keep an eye on your total savings and interest earned, as accurate reporting to HMRC will be key to avoiding penalties.
Stay Informed and Plan Ahead
The new rules might seem daunting, but they don’t have to catch you off guard. HMRC is expected to release more guidance in early 2025, so keep an eye on their website or speak to a financial adviser. By acting early, you can rearrange your savings to minimise tax and avoid surprises. For now, it’s worth reviewing your accounts and making sure you’re ready for what’s coming.