Category: Personal Savings
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Many people may be left struggling from new tax rules which could makesome savers pay tax on money they havent received yet.

From April 6, savers are no longer taxedon interest when it is paid into their account. A basic-rate taxpayer is able to earn up to pound;1,000 interest a year before income tax starts being paid.

For higher-rate taxpayers, the new Personal Savings Allowance is capped at pound;500 interest a year, and additional rate taxpayers must pay Income Tax on all their savings interest that isnt earned within an ISA.

The changes to how your savings are taxed mean that banks will now pay your interest gross, rather than taking basic rate tax automatically. If you earn more interest than the PersonalSavings Allowance permits for your tax bracket then you will need to fill out a tax return to pay what isowed.

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Unfortunately, some people may find they owe tax on savings they dont have access to. This is because if you have a fixed-rate bond, in many cases, the interest is added to the account annually even though you may not have access to it for years.

Tax on that interest is due in the year it is paid, so you could need to pay tax before the account has matured. And its not just those with traditional fixed-rate accounts that are affected - last year, many thousands of savers rushed to snap up three-year Pensioner Bonds and could find themselves in the same hole.

The liability for tax will arise when the interest is added to the account, regardless of the fact customers may not cash in until the end of the term, a spokesperson for National Savings amp; Investments told Money Mail.

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Will it affect me?

This depends on a number of factors. Firstly, how interest is paid on your accounts. Some fixed-term bonds add the interest annually while some dont add interest until the bond matures.

If your interest is paid annually then you need to calculate whether you will earn more interest than is allowed under the Personal Savings Allowance.

Bonds that pay all the interest upon maturity could also cause tax shocks because the taxman will count that interest in the year it is added to your account andyou cantspread it over the years the bond existed.

As a result, you could find yourself exceeding your PersonalSavings Allowance for that one year due to a hefty interest payment.

If you have exceeded the allowance for the tax year you will need to fill out a self-assessment form declaring the interest to the taxman. As the Personal Savings Allowance only came into effect this April the first self-assessment forms will not be due until October 2017.

The new Personal Savings Allowance is great but it is messy, says Sue Hannums from

The days of simple savings are gone and anyone taking out a fixed rate bond will now need to factor in the potential tax bill when choosing an account. This could deter people from taking out fixed rate bonds, but only time will tell.

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