Martin Lewis reveals hack to avoid paying tax on savings interest as HMRC to rake in £10.4bn
HMRC is expected to rake in a whopping £10.4 billion on interest made by savers in 2024/25. To put that into context it collected just £1.4bn three years ago (then £3.9bn in 2022/23 and £9.1bn in 2023/24).
Savers pay tax on their interest earned once they hit a certain threshold. For those paying the Basic Rate income tax, that threshold is £1,000. For higher earners the threshold is only £500.
A basic rate taxpayer (earning less than £50,270) with a 5% interest rate can save up to £20,000 before having to pay tax, while a higher rate taxpayer can save £10,000 tax-free, Hargreaves Landsdown calculates.
| Income Tax band | Tax-free savings interest | Tax payable over threshold |
|---|---|---|
| Basic rate | £1,000 | 20% |
| Higher rate | £500 | 40% |
| Additional rate | £0 | 45% |
But if interest rates were at 0.5% a basic rate taxpayer would only start paying tax once they’d saved more than £200,000.
NimbleFins' Best Savings Accounts Guide shows that while the era of 5% rates has ended, competitive deals remain. You can currently get 4.12% for one year with BACB or 4.15% with Al Rayan. For those seeking flexibility, Monument, Atom, and Chase are currently offering top easy-access rates around 4.5% to 4.55% (often including temporary bonuses). If you are looking to lock money away for longer, Oxbury is offering 4.10% on an 18-month fixed-rate account, providing a hedge against further base rate cuts expected later in 2026.
Three ways to avoid tax on savings
NimbleFins previously explained how to save money and have a lower tax burden.
This includes:
Buying Premium Bonds
Investing in ISAs
Topping up your pension
Read the full details on how to avoid paying tax on savings, here.
The number of savers caught in the tax net continues to climb. An estimated 2.52 million people paid tax on their savings in 2024/25, and that number is projected to rise to 2.6 million for the 2025/26 tax year.
This 'fiscal drag' is intensifying because income tax thresholds remain frozen until 2028ç That means, as wages rise, more people are pushed into the higher-rate tax band, which instantly slashes their Personal Savings Allowance from £1,000 to just £500. Most strikingly, an estimated 1.15 million basic-rate taxpayers will be hit with tax on their savings interest this year—a massive jump from the half a million recorded in 2022/23.
Personal finance expert Martin Lewis explained a way to avoid paying tax on a high interest account, which works if you're expected to earn different amounts each year and you can cleverly time when you're paid the interest.
That's because the tax is applied when the interest is paid out.
Martin told his The Martin Lewis Podcast listeners: “Just a quick note on interest at maturity. The interest crystallises for tax purposes when you can access it. So if you’re getting a fixed account, you for example don’t want the interest this year because you’re earning more this year for example let’s say you’re retiring this year so you’d earn more next year.
“Then by fixing an account and making sure the interest is only paid next year and you can only access it next year, you can move the interest into the next tax year and then that could be beneficial to you."
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