More than half a million savers are projected to face a tax bill exceeding £2,000 on their savings interest in the 2026-27 financial year. This figure represents a quadrupling from 119,000 in 2022-23, according to HMRC data obtained by Paragon Bank.
The data also indicates that over 100,000 savers could be liable for tax bills exceeding £10,000 on their interest income in 2026-27, a significant rise from 28,000 in 2022-23.
The increase in tax liabilities is attributed to rising savings rates and frozen income tax thresholds. The personal savings allowance (PSA) currently stands at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, with no PSA for additional-rate taxpayers. Any interest earned above these allowances is subject to income tax at an individual's usual rate.
From 2027, the income tax rate on savings interest is set to increase by two percentage points. This means basic-rate taxpayers will pay 22%, higher-rate taxpayers 42%, and additional-rate taxpayers 47% on interest exceeding their PSA.
Individual Savings Accounts (ISAs) offer a way to shield savings interest from tax. The overall ISA allowance remains £20,000, though the cash ISA limit for savers under 65 will decrease to £12,000 from April 2027.