Two in five (41%) savers think they don’t earn enough in interest to pay tax on their savings accounts, meaning that they could be "sleepwalking" their way into a surprise tax bill, Shawbrook Bank has revealed.

In research by the lender, it was found that one in 10 (9%) savers who have more than £20,000 in non-ISA savings accounts don’t believe they have enough in savings to worry about paying tax.

Assuming these savers were basic rate taxpayers, an interest rate of 5% could put them over their personal savings allowance (PSA).

The PSA is what savers can earn in interest before having to potentially pay tax. The PSA hasn’t changed since it was introduced in 2016, meaning that the basic rate taxpayers have an allowance of £1,000, dropping to £500 for higher rate taxpayers.

The research by Shawbrook has also found that one in five (20%) savers don’t know how the tax on their savings is calculated, while 17% have never declared their interest earned from their savings.

The specialist lender said this lack of understanding by savers "could be costly".

As interest rates remain high, many could, for the first time in their lives, earn over the PSA if they don’t take the steps to minimise this through tax-free savings accounts such as ISAs.

Despite being liable, almost one in five (17%) savers said they don’t know how much they pay in tax on their savings, and a further 15% never know if they need to pay tax on their savings or not.

Head of savings at Shawbrook, Adam Thrower, said: "It’s shocking to know quite how many people could be sleepwalking into an avoidable tax bill by not paying attention to their savings. The PSA has remained frozen since its inception, yet interest rates are much higher now compared to when this came into force, thus unaware savers could find themselves unnecessarily paying tax on their hard earned savings.

"The good news is that making use of ISAs is an easy way to reduce the tax burden. ISA accounts have a limit of £20,000 per tax year which for a couple means they could be saving up to £40,000 tax-free each year if they both open an ISA account. With the new tax year only just beginning, now is the time to start your year of savings right. Interest rates on ISAs remain high and there are accounts suited for everyone, from easy access to longer-term fixed-rate ISAs."

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