HMRC Sends Warning Letters to Pensioners About Tax on Savings Interest

The taxman is on the move — and it’s pensioners who should be paying close attention. Thousands of people across the UK, especially those in retirement, are receiving letters from HMRC warning that they may owe tax on the interest from their savings.

It may sound surprising, especially if you thought your pension income or savings were below the limit. But with rising interest rates over the last couple of years, more Brits are finding themselves in tax territory they didn’t expect. Here’s what’s going on, what it means for you, and how to stay on the right side of HMRC.

Why pensioners are receiving tax letters from HMRC

HM Revenue and Customs (HMRC) has started sending out thousands of letters to UK pensioners. These letters claim that people may have gone over their Personal Savings Allowance — the amount of interest you’re allowed to earn without paying tax on it.

If you’ve been saving in ISAs, you’re probably safe because Interest Savings Accounts (ISAs) are tax-free. But if your money is sitting in a regular savings account, and you’ve been benefiting from better interest rates since 2022–2023, it might have earned more than you realised.

According to financial experts, many people — especially pensioners who’ve spent their lives putting money aside — don’t even realise their accounts are racking up taxable interest.

What is the Personal Savings Allowance?

The rules are pretty straightforward, but it’s easy to miss the details:

• Basic-rate taxpayers (20%) can earn £1,000 in interest without paying tax.
• Higher-rate taxpayers (40%) only get a £500 allowance.
• Additional-rate taxpayers (45%) don’t get any allowance at all.

Let’s say you have £20,000 in a standard savings account earning 5% interest. That’s £1,000 a year — which is fine if you’re a basic-rate taxpayer. But anything more than that means HMRC expects a slice.

How do pensioners end up exceeding the savings allowance?

Many retired people aren’t necessarily high earners, so why are they being taxed?

The answer is simple: interest rates have gone up. A savings account that once earned pennies now earns hundreds — or even over a thousand — pounds a year. And if that’s the case, you could be liable for tax you didn’t even know you owed.

It’s also worth noting that your total income — including your state pension, private pensions, and savings — could push you into a higher tax bracket, lowering your Personal Savings Allowance at the same time your interest earnings are going up.

What these HMRC letters are asking pensioners to do

HMRC isn’t accusing anyone of wrongdoing. The letters are intended as a helpful nudge. They’re asking recipients to check whether they owe any tax for the 2022–2023 financial year.

You don’t need to panic, but you do need to act. The letter will usually ask you to review your interest earnings and, if necessary, report them by 30 September 2024. You can do this online through your Personal Tax Account or by contacting HMRC directly.

This isn’t just about this year — if you’ve owed tax in previous years and haven’t paid it, HMRC might come knocking eventually. So it’s best to get your records in order sooner rather than later.

Example: Margaret’s story

Margaret, a 72-year-old retired teacher from Devon, was surprised when she got a letter from HMRC. She had £35,000 in a savings account she’d barely touched for years. When she checked her annual statement, she saw it had earned over £1,500 in interest over the last financial year — putting her £500 over her Personal Savings Allowance. That meant she owed tax, even though her only other income was her pension.

“I couldn’t believe it,” she said. “I thought my money was just sitting there. I had no idea it was growing that much.” Like many others, she hadn’t considered that better interest rates would come with a tax catch.

How to check if you owe tax on savings

Not sure if you’re in the same boat as Margaret? Here’s a quick checklist to help you figure it out:

• Find your savings account annual interest statements (your bank can provide this).
• Total up your interest earnings across all accounts (not just one).
• Compare that to your Personal Savings Allowance based on your income tax bracket.
• If you’ve gone over, check whether tax has already been deducted — in many cases, it hasn’t.

You can also log in to your Personal Tax Account to see what information HMRC already has on file for you.

What happens if you owe tax?

If it turns out you do owe tax, don’t worry — it’s rarely a huge amount. You’ll likely be asked to pay it through an update to your tax code, which automatically adjusts how much tax is taken from your pension or payslip. In some cases, you may have to make a payment directly to HMRC.

Whatever you do, don’t ignore the letter. Respond by the deadline mentioned — 30 September 2024 for this round — and you’ll avoid penalties and interest for late payments.

How to stay in the clear moving forward

Here are a few easy ways to avoid future tax headaches:

• Use ISAs for your savings — interest earned in ISAs is tax-free.
• Track your interest earnings annually — don’t wait for HMRC to contact you.
• Review your tax code regularly — especially if your income changes.
• Consult an independent financial adviser if you have multiple income sources or savings accounts.

Final thoughts: Don’t let surprise tax bills catch you out

The HMRC letters are rattling some pensioners, but they don’t need to cause panic. With interest rates going up, your money might be quietly working harder than you realise — and that’s a good thing. You just need to stay informed and make sure you’re paying the right amount of tax along the way.

If you’ve received one of these letters, take it seriously but don’t stress. HMRC wants to help you get things right before problems build up. Take a few minutes to check your savings interest and act accordingly.

Better safe than sorry when it comes to tax on savings.

Need more help?

If you’re unsure, HMRC’s website has plenty of information, or you can speak to a tax adviser. The key takeaway? Check your interest now, save yourself a headache later.

For more money-saving tips and updates on pensions and taxes, stay tuned to our blog.