Lloyds Bank has issued a warning to savers as the bank has uncovered a common misunderstanding when it comes to tax on savings.
The bank is urging people to look at saving into tax-free ISAs particularly with the end of the tax year in April, but apparently many savers think all of their savings can avoid a HMRC bill.
Research from the bank found 24% of UK adults think all their saivngs are tax free, regardless of what type of account and the amount they have saved up.
If you are a basic rate taxpayer, your can earn up to £1,000 a year interest tax-free. Those on the higher rate can earn up to £500 with no tax to pay while those on the additional rate get no allowance.
Each person can also deposit up to £20,000 a year into ISAs, which are entirely tax-free, with no tax to pay on any interest earnings or investment growth within an ISA.
Lloyds is urging people to look at ISAs as a savings option. Simon Caddick, savings director at Lloyds Bank, said: “We’re passionate about empowering people to take control of their finances.
“It’s key that people feel they have the knowledge to make good, solid financial decisions – particularly as there are lots of options for different savings needs.
“Our message is simple as we approach the end of this tax year – think ‘ISA first’ to avoid losing money from your hard-earned savings. It’s a great way to start, and build, a savings pot for up to £20,000 each tax year, and, crucially, it’s tax free.”
The research found the most common reason people don’t save into an ISA is they don’t feel they have enough money in their budget to set aside for it.
Some 12.4 million adult ISA accounts were set up in the 2022 to 2023 tax year, up from 11.8 million new accounts from 2021 to 2022.
With the deadline to max out your allowances set for April 5, the turn of the tax year, savers may think they can put off moving their funds around.
But experts have urged people to act sooner rather than later. Sarah Pennells, consumer finance specialist at Royal London, explained: “Many Stocks & Shares ISA providers and banks will let you put money into an ISA right up to the deadline, but it might not be the case for all.
“Plus, April 5 falls on a Saturday this year, so it’s important to double check the rules with your provider. Even though you can put money into an ISA up to the deadline doesn’t mean you should.
“If you’re making decisions quickly, it’s easy to make mistakes. While you get a new ISA allowance on April 6, you can’t carry any allowance over from the previous year.”
