Rising interest rates could have a profound impact on the tax payable on your savings income. At Huddart Accountants, we break down the key points and highlight the need to discuss your investment strategy and tax planning with a professional adviser. With our expertise in tax services, we can help you navigate these changes and ensure you are making the most of your savings.
Understanding the impact of rising interest rates on savings income
Low interest rates have had one positive side effect – less tax to pay on interest income for most savers. But as interest rates are rising after a long period of being extremely low, you’re more likely to be paying tax on the interest income you’ve accrued.
Let’s take a closer look at the impact of higher interest rates on your savings income and tax liabilities.
What is the Personal Savings Allowance?
Most UK taxpayers can earn up to £12,570 from any source without paying tax. Separate from (and in addition to) this income allowance is the personal savings allowance.
The personal savings allowance shields from tax interest income of £1,000 for basic rate taxpayers. This shielding is reduced to £500 for higher-rate taxpayers and falls away altogether for additional-rate taxpayers.
How will rising interest rates affect my taxable income?
When interest rates were low, even people with quite sizeable savings didn’t need to consider paying tax on the interest earned. But as rates have increased, more taxpayers are going over the shielding threshold and are having to pay tax on their interest income.
This effect has been exacerbated by the freezing of tax thresholds, effectively pushing more people into the higher-rate and additional-rate tax brackets, where the personal savings allowance reduces or falls away.
Tax benefits of ISAs
It’s worth noting that interest earned in cash ISAs (Individual Savings Accounts) is tax-free.
As a UK taxpayer, you can invest up to £20,000 per annum into an ISA. Although traditionally the rate of interest earned has been lower than that available elsewhere, the tax saving will affect the relative return. The funds are generally available to be withdrawn at any time.
Discuss your investment strategy with Huddart Accountants
Tax is only one of the considerations when looking at investment strategies. If you have surplus funds, simply putting them into the bank to earn interest may not be the best choice.
At Huddart Accountants, we specialise in providing comprehensive tax services in the UK. While we cannot directly advise on investment strategies, we can certainly guide you through the tax implications of your savings plans. If you wish to discuss your savings plans with an independent financial adviser (IFA), talk to us and we’ll arrange an introduction. IFAs can provide advice tailored to your specific circumstances and needs, ensuring the best possible outcomes when it comes to mitigating tax.
Get in touch for expert Tax services in the UK
Navigating the complexities of tax on savings income can be challenging, especially with the changing landscape of interest rates and tax thresholds. At Huddart Accountants, we offer expert tax services to help you understand and manage your tax liabilities effectively.
Contact us today to discuss your investment strategy and how we can help you optimise your savings with our professional tax services. Let us assist you in making informed decisions that can save you money and maximise your financial returns.
For more information, visit our website or call us to schedule a consultation. With Huddart Accountants, you’re in safe hands for all your tax service needs in the UK.
