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HM Revenue and Customs (HMRC) is currently sending “nudge” letters to nearly 900,000 savers who may have exceeded their tax-free Personal Savings Allowance (PSA).

Why Is This Happening Now?

• Rising Interest Rates: Higher rates on savings accounts (often 5% or more) mean savers are hitting their tax-free limits much faster than in previous years.
• Frozen Allowances: The PSA has remained static since 2016, while frozen income tax thresholds have pushed more people into higher tax brackets, which simultaneously reduces their savings allowance.
• Automated Data Matching: Banks and building societies automatically report interest earnings directly to HMRC. HMRC is using this data to identify discrepancies between reported interest and tax paid.

Personal Savings Allowance Thresholds (2025/26)

The amount of interest you can earn tax-free depends on your annual income:

Income Tax Band	Annual Income Range	Tax-Free PSA
Basic Rate (20%)	Up to £50,270	£1,000
Higher Rate (40%)	£50,271 – £125,140	£500
Additional Rate (45%)	Over £125,140	£0

• Note: Savers with low non-savings income (below £17,570) may qualify for an additional Starting Rate for Savings of up to £5,000.

What the Letters Mean for You

• Tax Code Adjustments: For those employed or receiving a pension, HMRC may automatically adjust your PAYE tax code to collect the owed tax through monthly salary deductions.
• Simple Assessment: You may receive a Simple Assessment letter detailing a calculation of tax due if you are not in the Self Assessment system.
• Action Required: If you receive a letter, you should check your annual bank interest statements against HMRC’s figures.
  • If correct: The tax will likely be collected automatically via PAYE or you may need to pay a one-off bill.
  • If incorrect: Contact HMRC immediately with your bank statements to rectify the record.
• Deadlines: If you believe you owe tax but have not received a letter by 31 March, you must contact HMRC proactively to avoid potential late payment penalties (initially 5% of the tax owed).

Ways to Minimize Savings Tax

• ISAs: Interest earned in Individual Savings Accounts is entirely tax-free and does not count toward your PSA.
• Premium Bonds: Winnings from NS&I Premium Bonds are tax-free.
• Spousal Splitting: You can move savings to a spouse or civil partner who is in a lower tax bracket to utilize their PSA.

Are you concerned that a recent interest payout from a fixed-term bond might have pushed you over your allowance this year.