HMRC issues warning for all savers about £10,000 limit

HMRC has clarified its tax rules regarding a threshold that applies to all savers. The tax body issued a response to a query from a customer about whether they would need to complete a self-assessment tax return if their annual interest earnings exceeded £2,000.

HMRC said in response: "If you have more than £10,000 from dividends or savings and interest, you would need to complete a self assessment tax return. If you have a Individual Savings Account (ISA), this is tax free as well as some National Savings and Investment (NS&I) accounts."

ISA savers have no tax on any interest earned or on investment growth with these accounts. Savers can deposit up to £20,000 a year into ISAs without paying tax on the amount.

There is also a starting rate for savings that allows individuals to earn £5,000 in interest each year tax-free. However, this reduces by £1 for each £1 earned above the personal allowance of £12,570.

Basic rate taxpayers can earn up to £1,000 a year in interest tax-free, which drops to £500 for higher rate taxpayers and to £0 for those on the additional rate. NS&I customers with Premium Bonds do not pay tax on any prizes they win in the monthly draw, and NS&I also offers a Direct ISA and a Junior ISA.

Premium Bonds offer an exciting method of saving due to the chance of winning a prize each month, but the prize fund rate is dropping next month. The rate is set to decrease for the January draw from 4.15 percent down to four percent, with the odds of each £1 Bond winning currently standing at 22,000 to one.

Prizes vary from £25 up to the jackpot of £1million, and include significant sums of £100,000 and £50,000. David Kindness, an accountant who contributes to Best Money, advised: "For meaningful returns, it’s