Martin Lewis lets slip 'unbeatable' method to avoid tax on savings

Martin Lewis
-Credit: (Image: ITV)

Martin Lewis, the money expert, has revealed an 'unbeatable' interest rate on savings - and a completely legal way to avoid paying tax on it. In his latest podcast, Martin Lewis shared details of a Nationwide offer that provides a market-leading 5.5 per cent interest rate on savings, surpassing other top offers such as Chase's 5.1 per cent.

This offer, available only to Nationwide customers, can be claimed if you were with Nationwide on May 26. The account would be fixed for 18 months at 5.5 per cent, Martin explained, up to a maximum balance of £10,000.

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Furthermore, Martin suggested that you could retain the savings interest instead of paying tax on it, provided you are careful about when the account (or any fixed saving account) pays out, reports the Express. UK residents receive a Personal Allowance each year, which is the amount they can earn in savings interest before they have to pay tax on it.

Basic rate taxpayers (those earning less than £50,270) can earn £1,000 interest before they pay tax at 20% on anything above that, while those earning over £50,270 can earn £500 before they pay 40% on savings.

However, the tax owed is only payable when the interest is paid out. Regarding interest at maturity, Martin Lewis informed listeners of his podcast: "Just a quick note on interest at maturity. The interest crystallises for tax purposes when you can access it. So if you're getting a fixed account, you for example don't want the interest this year because you're earning more this year for example let's say you're retiring this year so you'd earn more next year."

"Then by fixing an account and making sure the interest is only paid next year and you can only access it next year, you can move the interest into the next tax year and then that could be beneficial to you."

"But there is no maximum number of accounts you can have, you want to put every penny where it earns the most interest."

"But you also want to manage that slightly by if you're not on top of it, by putting it in one place where when that ends, you'd be bothered to move it when the good rate ends because the good rate always ends, is better than having a good idea to put it in five or six different accounts and then when it comes to moving it you can't be hassled and then they all drop to a pants rate and you're left with six pants accounts."