Savings: When to pay tax on returns as more savers dragged into HMRC net | Personal Finance | Finance [Video]

Nearly three in 10 (29 percent) people do not know if or when they should pay tax on interest, new research reveals.

At the same time, one in 10 (10 percent) wrongly believe they do not have to pay tax on the returns made on savings held outside of an ISA, according to research from Shawbrook.

The survey of 2,326 UK consumers (18+) – with at least 1,500 who are ‘active savers’ – also found that nearly two in five (38 percent) of active savers overestimate the personal savings allowance (PSA).

Under the PSA, basic-rate taxpayers can earn £1,000 in interest before facing tax on their savings interest, while higher-rate taxpayers have a £500 allowance.

With the PSA sitting unchanged since being introduced in 2016, savers surveyed on average estimated you could save almost three times the actual limit at £2,649 before paying any tax.

Shawbrook’s research also highlights the confusion in declaring interest earned, …