If you’re concerned about how much money you should have in your savings account to avoid tax, there are a few things you should be aware of, according to a personal finance expert
Savers have been given a warning about potential tax payments on their savings accounts’ interest earnings.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, shared crucial insight on the matter. She pointed out: “The point at which a nest egg is liable for tax depends on the interest rate applied to the account – and also sometimes on how the tax is applied (monthly or annually) – so savers with more attractive savings rates might find they become liable to a tax payment at a much lower level of savings than they had anticipated.
“And many savers don’t even realise they could be liable for tax at all. Higher rate taxpayers can hold up to around £11,600 in a savings account with a rate of 4.31% before they use up their £500 personal savings allowance and find themselves charged tax on the interest they earn. For a basic-rate taxpayer today, there is more wiggle room.
“They can save just under up to £23,200 in an account with an interest rate of 4.31% before they breach their £1,000 allowance and tax charges get applied to their interest payments.” She explained: “The £20,000 applies across all types of ISA, so a savvy saver could store a portion of their savings in the highest-interest Cash ISA they can find and deposit the rest in a Stocks and Shares ISA to take advantage of longer-term investment returns.
“Those earning just above the £50,270 earnings threshold, for example, where the higher 40 per cent tax rate kicks in, could dip under it by using salary sacrifice. In turn, they would not only pay less tax on their income but also give their pension savings a healthy boost and also double their personal savings allowance.”
Birmingham Live report that Alice warned: “Just remember, while using salary sacrifice to top up a pension helps to secure your future, agreeing to a lower salary will impact your ability to access credit, such as a mortgage, as you will have a lower income to play with.
“Plus, employee benefits such as life cover, and holiday, sickness and maternity pay may also be affected so ask your employer for a personalised calculation of how the scheme will affect your take-home pay and benefits.”
