Martin Lewis addressed key misunderstandings regarding tax rules in a recent post. He emphasized the common confusion around the terms 'taxable' and 'taxed,' explaining that all earned income is taxable, but only earnings exceeding £12,570 are subjected to taxation. He highlighted the situation of savings, where interest is taxable, but the principal savings amount is not. This clarification is crucial in light of the frozen personal allowance, which he warns acts as a stealth tax increase due to inflation and rising incomes.
According to HMRC, you do not pay tax on savings. Just to be technical, that’s incorrect. It's savings interest that is taxable, not savings.
Martin Lewis highlighted a common confusion: taxable income includes all earned income, but it is only taxed once earnings exceed the annual personal allowance.
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