UK (Parliament Politics Magazine) – HMRC data shows over 2.6 million savers will face tax bills in 2025 due to frozen thresholds and high interest, with the average bill hitting £2,300.
As reported by The Telegraph, more than 2.6 million UK taxpayers are expected to pay tax on their savings during the current financial year.
What did HMRC data reveal about rising savings tax bills?
Thousands more savers are facing tax bills this year, as frozen thresholds and rising interest rates push earnings beyond the tax-free limit.
According to Freedom of Information data shared with AJ Bell, 2.64 million savers are expected to face tax bills in 2025–26, an increase of 120,000 from the previous year.
An estimated 1.15 million basic rate taxpayers will face savings tax, while nearly 13% of higher-rate and 45% of additional-rate savers are also expected to be affected.
AJ Bell analysis reveals that savers facing a tax bill in 2025 could pay an average of £2,300 in interest-related charges.
HMRC expects to collect over £6bn in savings tax this year, up from £1.4bn in 2020–21 when 800,000 people paid it.
Savings interest over £1,000 is taxed at your income rate. Higher-rate taxpayers get a £500 limit, while top earners get no tax-free allowance.
A basic-rate earner with £20,000 in savings earning 5% interest could now face a tax bill, as the interest exceeds the personal savings allowance.
Low earners can get up to £5,000 extra tax-free savings through the starting rate for savings. Higher-rate taxpayers only get a £500 savings allowance, and those earning over £125,140 get no allowance at all. But money in ISAs stays completely tax-free.
Savers have seen no increase in the personal savings allowance, which has been frozen for more than nine years.
What did Laura Suter say about the impact of rising interest rates on savers?
Laura Suter from AJ Bell said,
“These numbers highlight how the rising tide of interest rates has swept hundreds of thousands more savers into the tax bracket.”
She stated,
“The Government may be benefiting 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.”
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.”
She added,
“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.”
What did the Treasury say about savings tax?
A Treasury spokesman added,
“We are protecting the £20,000 tax-free yearly Isa savings limit, meaning the vast majority of people will continue to pay no tax on their savings.”
What does the future hold for the £20,000 cash ISA limit?
Savers could earn an average of 4% on a one-year fixed-term account, while easy-access accounts were offering a lower average of 2.68% on Monday, according to Moneyfacts.
Since the Bank of England cut its Bank Rate from 5.25% last August, savings rates have declined. Another reduction is expected later this week, analysts say.
The former Conservative government froze income tax thresholds from 2021 to 2028, a policy that has pushed millions into higher tax brackets as inflation drives up earnings.
The finance figures come amid renewed uncertainty over the future of the cash Isa, after Chancellor Rachel Reeves signalled she is considering reducing the current £20,000 tax-free limit to boost retail investment.
Criticism from savers and building societies has forced a delay in the government’s plans to outline changes to the cash Isa limit, which had originally been due in a City speech this July.
The proposed cut to the cash ISA limit is just one of several tax measures being considered. According to HMRC, as many as 20% of data files received from banks and savings providers were “unreadable,” raising concerns over reporting accuracy.
Responsibilities of HMRC
- Collect income tax, VAT, and other taxes to help fund public services.
- Track imports/exports, collects duties, and stops smuggling.
- Gives out government support like Child Benefit and tax credits.
- Catches tax cheats, checks for fraud, and makes sure wage laws are followed.