Millions of UK Savers Projected to Pay Significant Tax on Interest
A substantial increase in the number of individuals facing substantial tax liabilities on their savings interest is anticipated in the coming years. Projections indicate that up to 144,000 savers could be liable for £5,000 or more in income tax on their savings interest by the 2026-27 tax year.
This figure represents a dramatic rise, with an estimated 173% increase in four years. For the 2022-23 tax year, approximately 52,700 individuals had a tax liability exceeding £5,000 on their savings income. This number more than doubled to 117,000 in the 2023-24 tax year. Further increases are projected, reaching 133,000 in 2024-25 and 137,000 in 2025-26, before the projected 144,000 for 2026-27.
Savings Balances and Tax Implications
Analysis of current savings account data reveals a significant pool of funds held outside of tax-efficient wrappers. It is estimated that 1.1 million adult non-ISA instant access savings accounts hold balances of £100,000 or more, with a combined value exceeding £260.7 billion.
These substantial balances, particularly when earning competitive interest rates, are likely to generate considerable taxable income. Without the protection of an ISA, savers are exposed to income tax on the interest earned.
“Growing Issue” for Savers
The trend highlights how taxation on savings is evolving from a niche concern to a widespread issue for individuals with larger savings pots. This is particularly relevant at a time when many are holding significant sums in cash and actively seeking to maximize returns from high interest rates.
Expert Insights on Tax Bills
Andrew Wright, head of savings at Paragon Bank, commented on the findings, stating, “These figures show that tax on savings is no longer an issue affecting just a small number of people.”
He further explained, “As balances have grown and rates have remained relatively high, far more savers are now finding themselves with substantial tax bills on their interest.”
Wright advised, “With data showing 1.1 million non-ISA savings accounts hold more than £100,000, it is clear there are a lot of people with larger balances who may need to think carefully about how their money is structured.” He recommended that individuals regularly review their savings, check their earning rates, and consider utilizing tax-efficient options to retain more of their returns.
