HMRC update over tax ‘discrepancies’ affecting pensioners | Personal Finance | Finance
HMRC has issued guidance around tax on interest earnings. The update came after a question from a pensioner over social media. They wanted to know why there were some “discrepancies” in their reported untaxed interest earnings.
You can earn a certain amount of interest tax-free each financial year, which varies depending on what rate of income tax you pay. If you are a basic rate taxpayer, you can earn up to £1,000 interest tax-free.
There is also a starter rate for savings which applies once you move above the personal allowance of £12,570 a year, into paying income tax. You can earn up to £5,000 in interest earnings in line with the starter rate, but this reduces by £1 for each £1 your income is above the personal allowance. This means you lose this allowance entirely once you income is £17,570 or more.
If you are a higher rate taxpayer, you can earn only £500 interest each year tax-free. Those on the additional rate get no tax-free allowance, and have to pay tax on all their interest earnings.
The pensioner who contacted HMRC urged the department to point them in the right direction so they could resolve their issue, saying they are “not someone who can afford an accountant”. They said they had tried phoning up but had been told there would be a 45-minute wait to talk to someone.
In response, HMRC asked the person to clarify if they needed to inform the tax department of the bank interest earnings that they had received. The person said this was the case, as “I believe they have overestimated”.
HMRC told 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 department also sent the person a link to some contact details to get in touch with queries about income tax.
You can call the helpline for guidance with issues including queries around tax on savings income, such as if you need a refund. You can also discuss tax overpayments or underpayments on the phone line.
Taxpayers can also phone the line with if you have a query about your ISAs. A key benefit of ISAs is any interest earnings or investment growth within these accounts is tax-free.
Changes to tax on savings allowances
You can currently deposit up to £20,000 a year into ISAs and retain their tax-free status on your savings growth. Chancellor Rachel Reeves announced in her Autumn recent Statement this will be changing from the start of the 2027/2028 tax year, in April 2027.
At present, you can split the allowance between cash ISAs and stocks and shares ISAs. From April 2027, you will only be able to deposit up to £12,000 divided as you wish between cash ISAs and stocks and shares ISAs, while the remaining £8,000 can only be used for stocks and shares ISAs. However, the allowance will remain the same for those aged 65 and over.
