UK households can escape HMRC bill with certain type of bank account

A HMRC bill can be avoided with a £25,000 tax-free account. Savings provider is urging people to consider opening ISAs in a bid to escape any potential charges for breaching the personal tax allowance this financial year.

John Martin, Chief Product Officer at the firm, said: "Basic rate taxpayers (20%) can earn up to £1,000 of savings interest tax-free each tax year. Higher rate taxpayers (40%) can earn up to £500 of savings interest tax-free.

"For example, with savings rates at 4%, a basic rate taxpayer can hold up to £25,000 in a standard account before exceeding the PSA, and a higher rate taxpayer can hold £12,500." He explained: "If your interest earnings fall below these thresholds, the tax-free benefits of a Cash ISA may not always provide additional value, especially when standard savings accounts often offer higher rates."

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He explained: "Savers who maintain multiple savings accounts with portions of their cash maturing on a regular basis benefit the most. These savers get to enjoy reliable liquidity, the strongest-possible returns, and the opportunity to capitalise on the relentless competition among banks to stay at the top of the best-buy tables."

Joseph McLean, founding partner of NOVA Wealth, said: "For tax-free growth, use your full ISA allowance. If you’re focused on cash savings, a Cash ISA is a great option. For those investing, a Stocks and Shares ISA is even more powerful.

"Remember to put your highest-growth assets here as the ISA wrapper will shield gains from tax over the long term." And Mr Martin urged: "Right now, moving fast and switching to the market's best-performing rates could more than double their interest earning potential."

Money Saving Expert warned: "Each tax year (6 April until the next 5 April), everyone aged 18 or over gets a new ISA allowance. But if you don't use it, you lose it. Once that year's closed, you can't put another penny in that specific ISA allowance. So if you put aside nothing in the 2023/24 tax year, when the maximum was £20,000, that's it – it's gone. Or if you put £2,000 in during 2023/24, you can't now top it up as that tax year is closed.

"If you do deposit the cash in time, you can keep it in there, tax-free, for as long as you like. Then, as soon as the new tax year starts on 6 April, you can deposit a whole new year's allowance."