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Martin Lewis Warns: UK Households With £10,000 Savings Could Face Tax Hike
Martin Lewis Warns: UK Households With £10,000 Savings Could Face Tax Hike
For many families in the UK, saving money has always been considered a safe and sensible option — a way to prepare for emergencies, build towards future goals, or simply earn a little extra from interest. But recent warnings from financial expert Martin Lewis, founder of MoneySavingExpert, have cast a shadow over those who thought their nest egg was secure.
Lewis has sounded the alarm that households with savings of £10,000 or more may soon face unexpected tax increases on their interest income. With rising interest rates and changes to personal savings allowances, the warning comes at a crucial time when inflation is still biting and every penny counts.
Why Is This Happening?
The heart of the issue lies in the Personal Savings Allowance (PSA). Introduced in 2016, the PSA allows:
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Basic rate taxpayers to earn up to £1,000 of interest tax-free.
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Higher rate taxpayers to earn up to £500 of interest tax-free.
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Additional rate taxpayers receive no allowance.
For years, with interest rates so low, very few savers came close to breaching these thresholds. But with the Bank of England raising interest rates repeatedly to combat inflation, savers are finally seeing higher returns on their money — sometimes as much as 5% on certain fixed-term savings accounts.
This is good news on the surface, but it also means many ordinary households could now accidentally cross the tax-free threshold, dragging them into paying taxes on their savings.
What Does £10,000 in Savings Mean for Tax?
Let’s break it down with an example:
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If you have £10,000 in savings in an account paying 5% interest, you’ll earn £500 interest per year.
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For basic rate taxpayers, that still falls within the £1,000 PSA.
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But if you have £20,000 in savings at 5%, you’re looking at £1,000 interest per year, which just touches the PSA limit. Anything above this will start being taxed.
For higher-rate taxpayers, the situation is even more precarious:
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With only a £500 allowance, even £10,000 at 5% interest would use up your entire allowance. Anything more is taxable.
Lewis warns that this “tax creep” could catch households off guard, especially as more people move savings into higher-interest accounts to offset inflation.
How Much Tax Could You Pay?
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Basic rate taxpayers (20%): Pay 20% on interest above £1,000.
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Higher rate taxpayers (40%): Pay 40% on interest above £500.
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Additional rate taxpayers (45%): Pay 45% on all interest.
For example, a higher-rate taxpayer with £30,000 in savings at 5% interest could face a £1,000 tax bill on savings interest alone.
What Can Savers Do to Protect Themselves?
Martin Lewis emphasizes that there are still smart ways to shield savings from unnecessary tax:
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Use ISAs (Individual Savings Accounts):Every adult in the UK has an annual ISA allowance of £20,000, and all interest earned in ISAs is tax-free. Lewis recommends moving savings into a cash ISA or stocks and shares ISA where appropriate.
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Split Savings Between Partners:Couples can double their tax-free savings interest by ensuring both make full use of their allowances. For example, a couple could shield £2,000 in interest tax-free if structured correctly.
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Shop Around for Rates:Not all accounts offer the same returns. While high-interest accounts are tempting, it’s important to calculate whether they’ll tip you over the tax threshold.
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Consider Premium Bonds:Instead of earning taxable interest, Premium Bonds offer tax-free prizes. While not guaranteed, they can be a useful tool in a diversified savings strategy.
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Monitor Interest Payments Closely:As Lewis stresses, don’t assume banks will handle this for you. It’s your responsibility to declare and pay tax on savings interest if required.
Why This Matters for Everyday Families
For many households, savings are not vast sums sitting idle — they are built from years of careful budgeting, skipped luxuries, and financial discipline. Facing a surprise tax bill could discourage saving at a time when the UK desperately needs financial resilience.
Lewis’s warning highlights a broader problem: while higher interest rates are meant to help savers, they are now exposing families to tax thresholds that haven’t risen with inflation. In practice, this means savers are being penalized despite doing the responsible thing.
The Bigger Picture
The government has been under pressure to rethink the Personal Savings Allowance. Critics argue that the limits set in 2016 no longer reflect today’s reality, with inflation and interest rates both far higher. Without reform, millions of households risk paying taxes they weren’t expecting.
Lewis himself has suggested that Treasury officials must urgently address the issue, warning:
“We’re in danger of penalizing people for being prudent. At the very least, the savings allowance needs to be reviewed and raised.”
Final Thoughts
Martin Lewis’s warning is a timely reminder that financial rules can shift under our feet, even when we’re simply trying to save for the future. With interest rates climbing and households under pressure from the cost-of-living crisis, being proactive with savings is more important than ever.
Being prepared today could save you hundreds — or even thousands — in unexpected taxes tomorrow.
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