One million more pulled into tax on savings
Rising interest rates and frozen thresholds will force over one million more taxpayers to pay taxes on their savings interest this tax year, new data reveals.
Over 2.7 million individuals will pay tax on cash interest in the 2023/24 tax year, up by a million in a single year as more savers breach the personal savings allowance.
According to the figures, obtained by AJ Bell through a freedom of information request to HMRC, the Treasury will collect £6.6 billion in tax on earned savings interest.
The investment firm said that 1 in 20 basic-rate payers will pay tax on cash interest this tax year. 1 in 6 higher-rate payers and around half of additional-rate payers are also expected to be paying tax on their cash interest in the 2023/24 tax year.
AJ Bell urged Chancellor Jeremy Hunt to end the freeze on the personal savings allowance, which has remained unchanged since 2016 despite wage inflation and surging interest rates yielding higher gains.
Tax is ordinarily owed when a taxpayer earns more in interest than the personal savings allowance, which is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and non-applicable to additional-rate payers.
Furthermore, tax is paid either through self-assessment or deducted from income through a tax code adjustment. However, many taxpayers will be unaware that they owe tax until HMRC contacts them, AJ Bell said.
Laura Suter, head of finance at AJ Bell, said: “The figures highlight just how many taxpayers are facing a tax bill for their savings interest this year — a huge leap when compared to last year.
“The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years.
“Rising rates and a frozen personal savings allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day.”
For further information on personal tax planning, please contact us on 023 8046 1232 or email Martin Back.