HMRC warning as millions of savers face 'hidden tax burden' this year
Over 3.35 million individuals are forecasted to be taxed on savings interest in 2025 – when the interest earned on savings surpasses the tax-free allowance and becomes subject to income tax. This is a notable increase from just over three million in 2021.
The data, uncovered through a Freedom of Information request by Nottingham Building Society, highlights the impact of fiscal drag due to frozen tax thresholds.
Read more: Sharon Osbourne's gesture to Birmingham
Chancellor Jeremy Hunt, during his tenure in 2022, prolonged the freeze on income thresholds until 2028, which will inadvertently pull millions more taxpayers into higher bands despite only modest rises in their earnings.
While Prime Minister Sir Keir Starmer has pledged not to raise income tax rates, he has not dismissed the possibility of extending the freeze, often dubbed a "stealth tax", as reported by City AM.
Projections indicate that nearly 40 million people will be paying income tax in the 2025 to 2026 period – a significant leap from 34.5 million in the 2022 to 2023 period.
The Office for Budget Responsibility (OBR) predicts that income tax will generate over £330 billion for the 2025 to 2026 period.
Harriet Guevara, chief savings officer at Nottingham Building Society, commented that the new tax on interest figures "highlight a growing and often hidden tax burden on ordinary savers".
"At a time when families are trying to build financial resilience amid frozen thresholds and rising living costs, the government should be doing more to reward and protect savers," Guevara stated.
She criticised potential cash ISA reforms as the "wrong way" to propel the government's economic growth and investment objectives.
"Reform should focus on simplifying and strengthening it, not introducing new barriers or caps," she further commented.
The Chancellor has temporarily shelved cash ISA reforms following strong resistance from leading banks and building societies.
Under existing regulations, savers can deposit up to £20,000 into a cash ISA to shield the returns from taxation. However, the Treasury was reportedly considering lowering this allowance to encourage investment in stocks and shares.
The Building Society Association (BSA) cautioned that such a reduction could jeopardise Labour's homebuilding goals by making loans for households and businesses pricier and more difficult to secure.
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