Savings account warning to 5.2m Brits ‘exposed’ to new tax bill | Personal Finance | Finance
Many more Brits could face tax bills on their savings, which may be avoidable, according to a report. As many as 5.2 million non-ISA savings accounts are now earning enough interest to breach the £1,000 personal savings allowance (PSA) for basic-rate taxpayers, according to research by Paragon Bank. Once interest exceeds that threshold, it becomes taxable.
Those 5.2 million accounts hold a combined £516billion. For higher-rate taxpayers, who have a lower PSA of £500, the numbers rise to nine million accounts holding £632.7billion. Savers can shield interest from tax by using Cash ISAs (Individual Savings Accounts), which currently allow up to £20,000 a year in tax-free savings. However, there are rumours that this allowance will be cut in Rachel Reeves’ budget this year.
The PSA varies depending on income. Basic-rate taxpayers have a PSA of £1,000, whilst higher-rate taxpayers have a PSA of £500. Additional-rate taxpayers do not benefit from any PSA.
The Government has been quietly generating more revenue from the millions of people holding their money in these non-ISA accounts. The tax take from savings interest has been on the rise since 2022, as savings rates improved after a raft of Bank of England Base Rate increases implemented to help stem rising inflation.
According to HMRC data, the Government is projected to generate £6billion in tax from savings interest payments this year. This marks a significant increase from just £2 billion in the 2022/23 tax year.
Much of this is generated from additional-rate taxpayers, who will contribute £4.2billion this tax year, with higher-rate taxpayers contributing £1.3 billion, HMRC data showed.
Andrew Wright, Paragon Bank head of Savings, said: “With interest rates having recovered from historic lows and the Autumn Budget just around the corner, millions of savers are leaving themselves exposed to unnecessary tax bills.
“Our analysis shows that £516 billion is sitting in non-ISA accounts earning enough interest to breach the basic-rate Personal Savings Allowance limits.”
He added: “Savers should act now to protect their hard-earned money by moving funds into a tax-free wrapper such as a Cash ISA. Time is running out, and with speculation that ISA thresholds could be cut and the Budget just days away, the window to shield your savings from tax could soon narrow.”
