Martin Lewis issues warning to Brits who have over £20,000 of savings

Act fast to avoid paying too much tax.

Those with over £20000 in their savings account could face potential tax implications on their hard-earned cash.

In an update on X, Lewis highlighted that individuals earning between £12,500 and £50,000 annually could breach the personal savings allowance threshold if they have a hefty savings pot.

Will you pay tax on savings? If you need to how do you pay the tax? And the schemes the state encourages you to use, to reduce it. My new mini video briefing… pic.twitter.com/N5o08K5kQy

— Martin Lewis (@MartinSLewis) January 24, 2025

The financial whizz was shedding light on how to legally and ethically pay less tax on savings through approved government initiatives.

He clarified that taxes are not levied on the savings themselves but on the interest accrued from them

"You don't pay tax on the amount of savings you have - but you are eligible to pay tax on the interest you accrue each year," said Lewis. "You will probably have a Personal Savings Allowance, which is a special amount you can earn each year which isn't taxed."

He continued: "People earning £12k to £50,000 a year, your PSA is £1,000. You can earn £1,000 of interest and you don't have to pay tax on it. So let us do a little bit of maths. The top paying easy access rate at the minute is about five per cent - so you'll need to have about £20,000 to accrue £1,000 in interest."

For those earning from £50,000- up to £125,000, there's a £500 allowance, he explains.

As a rule of thumb, those people can have around £10,000 in a high interest account before they need to think about paying tax on savings interest.

Top-rate tax payers don't have any savings allowance, so they pay tax on any interest.

The rules are complex and individual circumstances vary, so it's worth checking for each personal case.

Lewis pointed out that with the top easy access accounts offering around 5 per cent interest, one would need approximately £20,000 saved to generate £1,000 in interest.

The financial guru offered advice for savers when it comes to understanding tax on savings interest.

"So if you've got £20,000 or less in savings and you're a basic rate taxpayer," he explained. "It is very unlikely that your savings interest would be taxed, so you don't have to pay anything so you can get on with it."

He explained further for those on higher incomes: "If you're a higher 40% rate taxpayer, which is someone earning over around £50,000 up to about £125,000, then your personal savings allowance is £500 a year."

The 52-year-old added that if people end up taxed through the self-assessment system, they would simply put the total amount of interest that they earn in their tax return.

"If you don’t have a self-assessment return, which many people who are employed and in jobs and aren’t very high earners don’t have to do, well then, as long as you’re earning less than £10,000 of interest a year," Lewis said.

"You don’t really have to do anything because the banks and building societies are feeding through your savings interest to HMRC and it will automatically alter your tax code for you to take into account the tax on savings that you should be paying."