More than 2.7mn people in the UK are expected to pay tax on cash interest, up by nearly a million in just one year.
AJ Bell called it a tax trap and has made a renewed call for the chancellor to double the personal savings allowance to protect those with up to £20,000 in accounts.
Data obtained by the investment platform showed in the 2023-24 tax year it is estimated that over 2.7mn people will pay tax on cash interest, including nearly 1.4mn basic rate taxpayers, a figure which has quadrupled in just four years.
This all adds up to an estimated total of £6.6bn that will be paid on interest by savers over the year.
The firm estimates around one in 20 basic rate payers will be paying tax on their cash interest which rises to one in six for higher rate payers.
AJ Bell wants the government to change the personal savings allowance which has remained the same since 2016.
Number of taxpayers to be hit with tax on their savings interest |
Tax year | Savings rate | Basic rate | Higher rate | Additional rate | Total |
2020-21 | 18,500 | 338,000 | 218,000 | 224,000 | 799,000 |
2021-22 | 16,400 | 365,000 | 267,000 | 268,000 | 915,000 |
2022-23 | 38,400 | 840,000 | 577,000 | 303,000 | 1,760,000 |
2023-24 | 69,100 | 1,370,000 | 842,000 | 452,000 | 2,730,000 |
Source: AJ Bell/HMRC freedom of information request. The 2020-21 figures are based on actual tax receipts, while the following years are HMRC estimates based on OBR forecasts. |
The personal savings allowance currently stands at £1,000 for basic rate payers and £500 for higher rate taxpayers.
AJ Bell head of personal finance, Laura Suter, said: “These 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. To add insult to injury, because inflation is so high, they aren’t even making a real return on their money – yet they are still being taxed.“
She added that many won’t even realise they owe tax on the money until they get a letter from HMRC.
HMRC declined to comment.
tara.o'connor@ft.com
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