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Taxing Interest

The past year has seen a steady rise in UK base rates from the 0.25% seen
in January 2022 to 3.5% in January 2023. The market expectation is
that these rates will rise still further in the first months of 2023,
perhaps rising as high at 4.5% by the middle of the year.

For savers these higher rates may at first seem like good news even
though, as many analysts have pointed out, the rate of inflation
means that the value of cash savings is still falling in real terms.
However, there is another sting in the tail for those with
significant cash savings. That is the chance that they may have to
pay income tax on some of their savings interest.

Standard rate taxpayers who earn over £17,500* are able to earn up to £1,000
in interest without having to pay tax on that interest. The rate is
£500 for higher rate taxpayers and £0 for additional rate
taxpayers. When the base rate was down at 0.1% that calculation
didn’t often come into play. Now as rates have increased more
people will find that they may well breach their limit, leaving them
to pay tax on excess interest received.

If you are looking for advice on investments, or if your situation has
changed and you may therefore need to review your existing pensions
or investments, contact Beckworth by using one of the links on our
website.

*Those
earning more than £12,500 and less than £17,500 have an additional
tax-free band for interest which changes depending on salary.