As interest rates remain relatively high in 2025, more UK savers are discovering that their bank accounts are earning more interest than before.
But with this good news comes a potential surprise:an HMRC warning related to your savings account.
So, what exactly is this “HMRC warning”? Why are some people being contacted about interest income, and how can you avoid running into trouble with the taxman? Let’s break it down.
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What Is the HMRC Warning on Savings Accounts?
The HMRC warning on savings accounts isn’t a formal rule or new tax—it’s a term used to describe alerts or notices from HMRC when your savings interest exceeds tax-free thresholds and goes unreported.
Thanks to enhanced digital reporting by UK banks and building societies, HMRC now has real-time visibility into how much interest your savings accounts are generating. If your interest income goes beyond the Personal Savings Allowance (PSA) and you haven’t declared it via Self Assessment, HMRC might send you a letter or warning about undeclared income.
❝ In short: the HMRC isn’t targeting savers randomly—but it does expect you to declare interest income above certain limits. ❞
How Does HMRC Know About Your Savings
In the past, it was easy to forget—or even unknowingly avoid—reporting interest from your bank accounts. But that’s changed.
Banks and financial institutions in the UK are now legally required to report your interest income directly to HMRC. These reports are matched with your tax records using your name, National Insurance number, and other identifiers.
🔍 So yes, HMRC can see your savings—and more importantly, it can track how much interest you’re earning, especially if you hold accounts with:
- Traditional banks (Barclays, Lloyds, etc.)
- Online-only banks (Monzo, Revolut, Chase UK)
- Building societies or fixed-rate savings bonds
If your total taxable interest across all accounts exceeds the allowable limit, you may get a letter asking you to update your Self Assessment return or pay the correct tax.
How Much Interest Can You Earn Before Paying Tax?
The Personal Savings Allowance (PSA) was introduced to give most savers a tax-free buffer on their interest income.
Here’s the 2025 PSA breakdown:
| Taxpayer Type | Tax-Free Interest Limit (PSA) |
|---|---|
| Basic rate (20%) | £1,000 |
| Higher rate (40%) | £500 |
| Additional rate (45%) | £0 |
If you’re a basic rate taxpayer, you can earn up to £1,000 of interest per tax year before paying tax. But if you’re in the higher or additional rate bracket, the threshold drops significantly—or disappears entirely.
💡 For example: If you have £50,000 in savings at an average 5% interest rate, you’d earn £2,500 annually—well over the £1,000 allowance. That excess £1,500 becomes taxable.
So yes, many savers are now breaching the PSA threshold for the first time—triggering HMRC alerts.
When Will HMRC Contact You?
You might receive an HMRC letter or “nudge” message if:
- Your bank-reported interest exceeds the PSA.
- You haven’t declared that income on your Self Assessment.
- HMRC notices discrepancies between your income and bank interest.
- You suddenly earn a large amount of interest in one year.
These HMRC warnings often take the form of polite letters, asking you to check your tax return and correct any errors. But repeated inaction may result in formal tax demands or even penalties.
🚨 Note: Receiving a letter doesn’t mean you’ve done anything illegal—it’s usually a reminder to stay compliant.
What Happens If You Don’t Declare Savings Interest?
If your interest income goes above your PSA and you don’t declare or pay the correct tax, HMRC may:
- Issue a backdated tax bill for the unpaid amount.
- Add penalties or interest to the amount owed.
- Flag your account for further scrutiny.
- Require you to file Self Assessment in future tax years.
While HMRC typically gives you a chance to correct mistakes, repeated errors or avoidance can lead to investigations—especially if large sums of interest go unreported.
So, yes, your bank interest is taxable—and HMRC now knows when it exceeds the allowance.
Who Is Most Likely to Be Affected by the HMRC Warning?
Not everyone will face an HMRC warning. But certain groups are more at risk, especially in 2025:
1. Higher-Rate and Additional-Rate Taxpayers
With smaller or zero PSA thresholds, even modest savings can generate taxable interest.
2. People With Large Savings Balances
If you have over £10,000 in savings, especially in high-interest accounts, you’re likely approaching or exceeding the PSA.
3. Retirees or Pensioners
Those relying on interest income may unknowingly cross the threshold if they’re not closely tracking returns.
4. People Using Multiple Accounts
Using multiple banks or challenger accounts like Monzo, Atom Bank, or Chase can make it easy to lose track of cumulative interest.
5. ISA & Non-ISA Mixers
If you’re mixing ISA (tax-free) and non-ISA savings accounts, you must be careful not to assume all your interest is untaxed.
How to Avoid an HMRC Warning or Tax Trouble
Here’s how you can stay compliant and avoid getting flagged:
✅ 1. Track All Your Interest Income
Make a spreadsheet or use banking apps to keep an annual total of all interest earned.
✅ 2. Know Your PSA Threshold
Understand which taxpayer category you fall into and what your interest limit is.
✅ 3. File Self Assessment If Required
If your interest income exceeds your PSA, file a Self Assessment—even if you’re not self-employed.
✅ 4. Use ISAs Wisely
Maximise your tax-free savings by using Cash ISAs or Stocks & Shares ISAs.
✅ 5. Check for HMRC Letters
Don’t ignore any HMRC letters asking you to check your savings income. These are usually early interventions to help you avoid bigger problems later.
✅ 6. Speak to a Financial Advisor
If you’re unsure whether you owe tax or need to file, consult a tax professional or advisor.
Frequently Asked Questions (FAQs)
❓ Can HMRC see my bank savings?
Yes. HMRC receives data from banks and building societies about the interest you earn, which is automatically matched to your tax profile.
❓ Do I need to declare bank interest under £1,000?
No, if you’re a basic rate taxpayer and your total interest is below £1,000, you don’t need to declare it. But if you exceed the threshold, you must report the excess.
❓ What happens if I forget to report interest income?
HMRC may issue a letter or backdated tax bill. You’ll likely be asked to correct your tax return or submit a new one via Self Assessment.
❓ What’s the best way to keep my savings tax-free?
Use ISAs, stay below your PSA, and monitor multiple savings accounts to avoid exceeding limits.
Conclusion: Stay Informed, Stay Compliant
The HMRC warning on savings accounts isn’t about punishing savers—it’s about ensuring tax rules are followed now that interest rates (and savings returns) are rising.
With HMRC’s digital tools and banks’ automatic reporting, there’s no hiding savings income anymore. The key is to:
- Know your PSA
- Track your interest
- Declare what’s taxable
And if HMRC does send you a letter? Don’t panic. Just review your accounts, take action if needed, and seek advice.