Martin Lewis explains how you can avoid being taxed on savings

In response to a question sent into the Martin Lewis Money Show from a viewer about tax on savings and cash ISAs, Mr Lewis highlighted that it was the amount of interest that a person earns on savings that would be taxable and not the money itself. Under the personal savings allowance (PSA) rules introduced in 2016, basic rate taxpayers, who pay a 20 percent tax rate, can get £1,000 worth of interest a year tax-free on any savings.Higher rate taxpayers, who pay 40 percent, could get £500 worth of interest tax-free and top rate taxpayers, paying 45 percent, have to pay tax on all interest made.Mr Lewis said to earn a grand worth of interest someone would have previously needed to have a ‘decent whack’ of savings.However, due to rapidly rising interest rates, Mr Lewis warned that more and more people could be facing a tax charge as people need far less in top savings before they pay tax.He explained: ‘Now you would need £40,000 in the top easy access account before you could earn a grand in savings and you would need £20,600 in the top two year fix account.READ MORE: Half a million pensioners to miss out on state pension rise due to where they live Mr Lewis warned rising interest rates could force more people into paying tax on their savings (Image: GETTY & MARTIN LEWIS MONEY SHOW ITV)’What’s really interesting about this is how it has changed, if you go back in time to April 2021, in the top easy access account you would need nearly £250,000 before you paid tax.’As rates started to increase, the amount needed in savings has decreased so far more people now will be paying tax on savings.’Mr Lewis noted that Cash ISAs could give people who have bigger savings pots an advantage however those who do not face being taxed should take advantage of the higher interest rates in normal savings accounts.He added: ‘A Cash ISA is just a savings account and the interest is never taxed. That interest doesn’t count towards your personal savings allowance, it doesn’t count towards that £1,000.”DON’T MISSRishi Sunak ‘will do what’s right’ pensioners told as they await verdict on 10.1% rise [TRIPLE LOCK]Halifax customer warns of ‘classic’ cold call scam where fraudsters can steal your details [FRAUD]Pensioner ‘amazed’ to get £18,000 cheque after Martin Lewis’ state pension warning [PENSIONS TIP] What is an ISA? (Image: EXPRESS)One audience member raised her hand and Mr Lewis said if they were not paying tax, then they should definitely get out of the ISA and place their money into a high-interest paying savings account.He then suggested those who believed they needed a cash ISA to transfer their money to a ‘top payer’.In the Money Saving Expert newsletter which was released alongside the show last night, Mr Lewis explained that people should not just ‘withdraw cash and move it’ as it will lose its cash ISA status.Instead, people will need to apply for a new cash ISA and as part of the application, they will be asked if they want to transfer their existing cash ISA over.In the Money Saving Expert newsletter which was released last night, Mr Lewis explained that people should not just ‘withdraw cash and move it’ as it will lose its cash ISA status.Instead, people will need to apply for a new cash ISA and as part of the application, they will be asked if they want to transfer their existing cash ISA over.The Martin Lewis Money Show is currently on every Tuesday at 8pm on ITV.