HMRC issues warning to people who've had £500 paid into their bank accounts

A HMRC warning has been issued to people who've accrued £500 in their bank accounts via interest. Under the personal tax allowance, those who pay the basic rate of income tax can earn £1,000 a year of interest tax-free while those on the higher rate can accrue £500 in interest.

But once you hit the 45% higher income tax band, earning £125,140 or above, you don't get any tax-free interest allowance on your savings. Jason Hollands, managing director at Evelyn Partners, said: "It is really important not just to focus on the headline interest rates, but to consider the impact of tax. More and more people are going to find they owe tax on cash savings given the frozen nature of the Personal Savings Allowance."

He said: "With savings rates now at around 4.5 per cent to 5.0 per cent, hundreds of thousands more savers are either paying tax on their cash savings interest, or close to doing so." He went on, adding: "For those not already using their ISA allowances on investments, the £20,000 per adult ISA allowance should be utilised.

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"For those with more sizeable sums, another option – if they are married – could be to move cash into whichever spouse might be subject to lower rates of tax." Rob Morgan, chief investment analyst at Charles Stanley, said: "The interest rate picture remains positive for savers with the best easy access rates still north of 4.5 per cent.

"However, this inflation-beating rate of return is likely to narrow over time as the base rate moves lower. It may therefore be a good time to consider a fixed rate if you are happy to lock your money away because inflation and interest rate expectations may now fall back a little.

"A rate of around 4.5 per cent is currently achievable for a one-year fixed term."