HMRC warning to anyone with over £1,000 in a savings account

A £1,000 HMRC savings limit is affecting UK taxpayers, it has been cautioned. As we approach the New Year, savers are warned that they risk paying interest if they earn more than £1,000 interest, or even less if they are a higher rate taxpayer.

If you're a basic rate income tax payer, you can earn up to £1,000 in interest on any savings without being taxed. Most individuals can earn some interest from their savings tax-free.

Your allowances for earning interest before you have to pay tax on it include your Personal Allowance, starting rate for savings and Personal Savings Allowance. These allowances are given each tax year, with the amount depending on your other income.

The tax year runs from 6 April to 5 April the following year. If you haven't used up your Personal Allowance on your wages, pension or other income, you can use it to earn interest tax-free.

You may also be able to earn up to £5,000 of interest tax-free. This is your starting rate for savings, reports Birmingham Live.

However, the more you earn from other income (like your wages or pension), the less your starting rate for savings will be. If your other income is £17,570 or more, you're not eligible for the starting rate for savings.

If your additional income is less than £17,570, your starting rate for savings is a maximum of £5,000. For every £1 of other income above your Personal Allowance, your starting rate for savings decreases by £1.

You may also receive up to £1,000 of interest tax-free, depending on your Income Tax band. This is known as your Personal Savings Allowance.

To determine your tax band, add all the interest you've received to your other income. A taxpayer recently contacted HMRC with a query about ISAs after opening a new account.

They asked: "In the past financial year I opened a One Year Fixed Rate cash ISA and a LISA (different banks). Can I also open a stocks and share ISA in the same financial year and pay it to all of them, but not totally over £20,000."

HMRC responded: "Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts. The tax year runs from 6 April to 5 April."

The taxpayer then asked HMRC: "Can I open a cash ISA, LISA and stocks and shares ISA in the same financial year? " HMRC confirmed: "Yes, as long as you don't exceed your £20,000 ISA allowance in any given tax year."