Martin Lewis highlights implications for UK savers as interest rates hit 5%

Martin Lewis, founder of Money Saving Expert, has issued a warning to individuals with £10,000 in savings, stating that they may be at risk of losing money to tax due to the current high interest rates. According to Martin, the situation surrounding tax on savings has undergone significant changes in recent years, with savings account interest rates surging from approximately 1% to around 5%.

As a result, more people with savings are now eligible to pay tax on the interest generated, as they are using up their entire Personal Savings Allowance - the amount that can be earned in savings interest before becoming liable for tax. During the latest episode of ITV's The Martin Lewis Money Show Live, Martin cautioned that a basic rate taxpayer with £20,000 in savings could be liable for tax within just 12 months. Furthermore, a higher rate taxpayer, earning £50,270 per year, could be liable for tax on just £10,000 of savings.

Martin explained: "So look, savings tax is back for many. When you get interest on your savings, it is eligible for income tax. It counts as income," reports the Express. "But you get a Personal Savings Allowance. What this means is a basic rate taxpayer can earn £1,000 a year of interest and you don't pay tax on it. It can be in any form of savings account that you like.

"As a higher 40 percent taxpayer, you can earn £500, as a top 45 percent taxpayer if you earn over £125,000 a year you don't get one of these. So what does that mean in practice? So if you take that top 5 percent figure, as a basic rate taxpayer if you have over £20,000 in savings at 5 percent, you would earn more than a grand of interest so everything above that would be taxed.

"As a higher rate taxpayer it's £10,000. So for those people saving £100, £1,000, £2,000, it's irrelevant to you if you're a basic rate or higher rate taxpayer. For those people who've got savings that get into the tens of thousands of pounds, tax starts to become more important.

"And the reason it's come back is, when interest rates are 1 percent, to earn £1,000 of interest you needed a hell of a lot in savings. Now they're 5 percent, you need a fifth of it, so it really has changed very much."