HMRC tax bill letters could be sent to those with over £3,500 in savings account

If you've got £3,500 or more stashed away in savings, you could be hit with an unexpected tax bill from .

HMRC has the ability to by your bank account. If you exceed a certain threshold, you'll automatically receive a notice of an additional . This week marked the start of the new tax year 2025-2026 on Sunday, April 6. This means that your entire previous financial year is now complete, and HMRC will soon be assessing people's final situations and issuing tax bills to those who owe money in tax on savings accounts. These are automatically reported to the taxman by your unless they're in a Cash ISA, which is protected from tax.

The Personal Savings Allowance allows you to earn up to £1,000 per year in savings interest without being taxed on it, but this only applies if you earn less than £50,270. If you earn £50,271 or more, your Personal Savings Allowance is reduced to just £500, reports .

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And if you earn £125,000, your Personal Savings Allowance drops to £0. The exact amount you'll owe depends on your earnings, how much interest you received, and when it was paid out.

However, you could be hit with a tax bill with as little as £3,500 if you had placed it into a fixed savings account for several years, because the interest is all paid out in one go, so it counts in one tax year. Tucking away £3,500 in a fixed savings account with an interest rate of 5% for a period of three years could see you pocket over £500. With fixed-rate accounts, your interest payments are "crystallised" the moment they're paid, meaning you get the whole sum at the end of the term all in one go.

But there's a catch - earning just over £500 in interest could tip you over the £500 Personal Savings Allowance limit if you have other accounts accruing interest. Should that happen, expect a nudge from HMRC about the surplus.

Especially if you're a higher earner taking home a salary above £50,270, every penny over the £500 allowance will cost you not just at the standard 20 percent, but a heftier 40 percent tax hit. A mere £100 over that threshold will lighten your wallet by £40 in taxes.

It's not just fixed accounts that pose this risk; holders of easy access accounts aren't immune either. For example, popping £11,000 into a savings account at 5% interest for a year would yield £550, also breezing past your Personal Savings Allowance and leaving you owing taxes to HMRC, assuming your earnings exceed the £50,270 mark.

And this doesn't just apply to the well-heeled. If your income falls short of £50,270 but your savings are substantial, say £21,000 at the same interest rate, that generates £1,050 in interest - once again surpassing the lower £1,000 savings threshold and inviting tax dues.

Bear in mind, quite a few types of income count towards your Personal Savings Allowance. The Government chalks up interest from savings and credit union accounts as contributing factors.

• Unit trusts, investment trusts and open-ended investment companies.
• Peer-to-peer lending.
• Trust funds.
• Payment protection insurance (PPI).
• Government or company bonds.
• Life annuity payments.
• Some life insurance contracts.

HMRC further explains: "If you go over your allowance, you pay tax on any interest over your allowance at your usual rate of income tax. If you're employed or get a pension, HMRC will change your tax code so you pay the tax automatically.

"To decide your tax code, HMRC will estimate how much interest you'll get in the current year by looking at how much you got the previous year."