The Albany Gazette - UK Taxpayers Warned to Verify Codes Before April 2027 Savings Rate Hike

Harvey Dhillon, founder and chief executive of the accountancy firm Zmartly, has issued a directive to UK residents to review their HM Revenue and Customs (HMRC) tax codes immediately. The advice comes in anticipation of legislative changes that will increase the tax burden on savings interest for basic and higher rate taxpayers starting in April 2027.

The proposed adjustments stem from announcements made during last week’s Budget, which suggest adding two percentage points to existing rates set by the Finance Act 2026. If the Finance Bill 2026-27 passes through Parliament as planned, the tax rate on savings interest will rise to 24 percent for basic rate taxpayers, 44 percent for higher rate taxpayers, and 49 percent for additional rate taxpayers. These figures represent an increase from the currently legislated rates of 22 percent, 42 percent, and 47 percent respectively.

Dhillon emphasized that while these changes are not yet law, they constitute a confirmed plan requiring parliamentary approval. The shift would result in basic rate taxpayers paying one-fifth more tax on taxable interest compared to current levels, while higher rate taxpayers would see an increase of one-tenth.

Despite the rate hikes, the Personal Savings Allowance remains unchanged. Basic rate taxpayers can still earn £1,000 of interest tax-free annually, and higher rate taxpayers retain a £500 allowance. Additional rate taxpayers continue to receive no personal savings allowance.

To illustrate the financial impact, Dhillon provided a scenario involving a basic rate taxpayer earning £30,000 annually with £40,000 held in an easy-access account outside of an Individual Savings Account (ISA). At a 4 percent interest rate, this generates £1,600 in interest. After the £1,000 allowance, £600 is subject to tax.

Under current rules, this results in a £120 tax bill. With the proposed 24 percent rate, the liability would rise to £144. For a higher rate taxpayer with identical savings, the taxable amount would be £1,100 after the £500 allowance. The tax bill would increase from £440 to £484.

Dhillon noted that while these annual increases of £24 and £44 respectively are not life-changing, they accumulate quietly over time. He stressed the importance of understanding one’s own financial position rather than relying solely on automated deductions.

The mechanism for collecting this tax typically involves HMRC adjusting an individual’s tax code to recover taxes through salary or pension payments. Banks and building societies automatically report interest paid to HMRC after each tax year ends. HMRC may also build an estimate of the current year’s interest into the tax code.

If this estimate is incorrect, individuals may pay the wrong amount until it is corrected. Those without a tax code or whose codes cannot be adjusted may receive a Simple Assessment letter instead. Individuals with interest exceeding £10,000 must report it on a Self Assessment tax return.

Dhillon also highlighted the starting rate for savings, which allows individuals with other taxable income below £17,570 to receive up to £5,000 of interest tax-free. This allowance reduces as other income increases; for every £1 above the £12,570 Personal Allowance, it decreases by £1.

He advised logging into the Personal Tax Account on gov.uk to check tax codes. If the code includes an estimate for savings interest, it should be compared with actual account statements. If accounts have been closed, money moved into an ISA, or rates have dropped, the estimate may be outdated.

Money held inside an ISA remains outside these calculations, and the Budget kept the yearly ISA limit at £20,000. Dhillon recommended checking any received tax calculation against bank statements and contacting HMRC if figures do not match.

He shared his personal approach to financial management, stating he runs household accounts like a business using Xero software to track income and expenditure. He emphasized the importance of encouraging people to save rather than discouraging it. If the proposed rise goes through, he argued, it is beneficial to know one’s own numbers rather than leaving them solely to a tax code.

(P.Davis--TAG)