05-08-2025
2.6 million people to be stung by savings tax
More than 2.6 million taxpayers will be hit with bills on their savings this year, HMRC figures show.
Frozen tax thresholds and higher interest rates mean tens of thousands more savers will earn enough interest on their funds to pay a bill.
In the 2025-2026 tax year, 2.64 million savers will face a tax bill, up by over 120,000 from 2.52 million last year, according to HMRC predictions shared under Freedom of Information rules with AJ Bell.
Some 1.15 million basic rate taxpayers will be stung on their savings. Approximately one in eight higher-rate and 45pc of additional-rate savers will also be hit with a bill.
The average saver will pay £2,300 in tax on the interest their savings earn this year, according to AJ Bell's analysis.
It means HMRC is forecast to rake in more than £6bn from savers. This is up from £1.4bn in 2020-21 when just 800,000 were hit with a tax bill.
Savings tax is paid on interest earned over the personal savings threshold. It is charged at the taxpayer's income tax rate, with basic rate taxpayers able to earn £1,000 before they attract a bill.
This means a basic rate taxpayer who has £20,000 in a savings account with a 5pc interest rate would be liable for a bill.
For those on lower incomes, the starting rate for savings adds an extra allowance of up to £5,000.
For higher-rate taxpayers, the personal savings allowance is £500. Additional-rate taxpayers, those who earn more than £125,140, do not benefit from a tax-free allowance, although all money held in Isas is protected from tax.
The allowance has been frozen for more than nine years.
Laura Suter, of AJ Bell, said: 'These numbers highlight how the rising tide of interest rates has swept hundreds of thousands more savers into the tax bracket.
'The Government may be benefitting from increased revenue, but many ordinary savers are worse off. Using tax wrappers like cash Isas or investment Isas is now more important than ever to protect your savings from the taxman.'
The trend has been driven by a combination of higher interest rates, which allow savers to make more from their money, as well as frozen allowances.
The average one-year fixed savings rate was hovering at 4pc on Monday, according to Moneyfacts. The average easy-access rate was sitting at 2.68pc.
Savings rates have been slowly dropping since the Bank of England began to cut the Bank Rate from its high of 5.25pc in August last year. A further cut is expected this week.
Income tax thresholds were frozen between 2021 and 2028 by the previous Conservative government. The policy has dragged millions more taxpayers into higher brackets as inflation pushes up incomes.
The figures come amid speculation about the future of the cash Isa, after Chancellor Rachel Reeves signalled she was considering cutting the £20,000 tax-free limit in order to stimulate retail investment.
But after a significant backlash from building societies and savers, an announcement on the future of the limit, which had been expected at a City speech in July, was delayed.
A potential cash Isa raid is not the only tax grab that has been mooted this year. In documents published alongside the Spring Statement, HMRC said that data being shared by banks and other savings providers was 'unreadable' in as many as one in five cases.
Ms Suter said: 'HRMC says it cannot reconcile bank account interest with taxpayer data in around a fifth of cases, costing hundreds of millions in uncollected tax revenue.
'While that's a win for the lucky taxpayers who are let off the hook by HMRC's systems, it illustrates that the current approach is error-prone.'
Savings providers will be required to collect National Insurance numbers from the majority of savers in future in order to match accounts with HMRC data, the Government said in response to the consultation in July.
The Treasury was contacted for comment.
