A pensioner said there were ‘discrepancies’ in their reported details
HMRC has issued guidance regarding tax on interest earnings following a question from a concerned pensioner on social media. The update emerged after the person questioned why there were some “discrepancies” in their reported untaxed interest earnings.
You can earn a specific amount of interest tax-free each financial year, which differs depending on your income tax rate. Basic rate taxpayers can earn up to £1,000 interest without paying tax.
There’s also a starter rate for savings that kicks in once you exceed the personal allowance of £12,570 annually and begin paying income tax. You can earn up to £5,000 in interest earnings under the starter rate, but this decreases by £1 for every £1 your income exceeds the personal allowance.
This means the allowance disappears completely once your income reaches £17,570 or above. Higher rate taxpayers can only earn £500 interest annually tax-free.
Those on the additional rate receive no tax-free allowance and must pay tax on all their interest earnings. The pensioner who approached HMRC asked the department to guide them towards resolving their issue, explaining they are “not someone who can afford an accountant”.
They said they had attempted to phone up about the problem but were told there would be a 45-minute wait to speak with someone.
Interest earnings ‘overestimated’
In response, HMRC asked the pensioner to clarify whether they needed to notify the tax authority about the bank interest earnings they had received. The person confirmed this was indeed the case, stating “I believe they have overestimated”.
HMRC informed the taxpayer: “You can either write to us or call an adviser to inform about the interest. Our phone lines open at 8am until 6pm Monday to Friday, and usually less busy between 8am and 9am”.
The tax authority also provided the person with a link to a page on the Government website with some contact details for income tax enquiries. You can call the helpline for assistance with matters including questions about tax on savings income, such as if you require a refund.
You can also discuss tax overpayments or underpayments on the phone line. Taxpayers can also call the department for help with ISA-related queries.
A major advantage of ISAs is that any interest earnings or investment growth within these accounts remains tax-free.
Changes to tax-free allowances for savings
Currently, you can deposit up to £20,000 annually into ISAs while maintaining their tax-free status on your savings growth. Chancellor Rachel Reeves announced in her Autumn Statement that this will be altered from the beginning of the 2027/2028 tax year, in April 2027.
Currently, you have the flexibility to divide your allowance between cash ISAs and stocks and shares ISAs. However, from April 2027, a new rule will cap the amount you can deposit into cash ISAs and stocks and shares ISAs at £12,000, leaving the remaining £8,000 exclusively for stocks and shares ISAs.
But many pensioners will dodge this change, as the new allowance will only apply to those aged 65 and over. For people of this age, their allowance will remain unchanged.
