Billions of pounds in savings are at risk of being targeted by HM Revenue and Customs (HMRC) in a tax raid which could impact the nest eggs of 5.2 million Britons.
More than five million UK adults are exposed to avoidable tax charges as their savings generate returns exceeding personal allowances, according to new data.
Research from Paragon Bank shows £516billion across 5.2 million non-ISA accounts produces annual interest surpassing the £1,000 threshold for basic-rate taxpayers.
The findings emerge as households brace for potential changes in the forthcoming Autumn Budget with many anticipating a cut to the tax-free allowance linked to ISAs.
Could your savings be taxed?
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Speculation about possible reductions to cash ISA limits has intensified concerns among savers already grappling with improved interest rates that push their returns into taxable territory.
The scale of exposure extends further for higher earners, with nine million accounts containing £632.7billion generating sufficient interest to exceed the £500 allowance for higher-rate taxpayers.
Treasury coffers have benefited substantially from this situation, with HMRC projecting £6billion in income tax receipts from savings interest during the current tax year.
This represents a threefold increase from the £2billion collected in 2022/23, reflecting the impact of higher interest rates on savers’ returns.
The burden falls disproportionately on wealthier individuals, with additional-rate taxpayers expected to contribute £4.2billion while those in the higher-rate bracket will pay £1.3billion.
Additional-rate taxpayers receive no personal savings allowance, while higher-rate payers benefit from only £500 compared to the £1,000 threshold for basic-rate taxpayers.
Financial stress has intensified across British households, with 55 per cent reporting anxiety about their money matters, a sharp rise from 45 per cent recorded in 2023, Yorkshire Building Society research indicates.
Among these worried individuals, 16 per cent describe themselves as experiencing severe financial stress.
The prospect of increased expenses compounds these concerns, with 69 per cent anticipating higher outgoings within six months.
Government fiscal decisions loom large in household calculations, as 75 per cent of survey participants expect tax and regulatory policies to affect their financial position.
Nearly half of ISA holders fear the impact of potential allowance reductions, with 48 per cent stating cuts to the current £20,000 limit would affect them moderately or severely.
The majority of savers demonstrate strong attachment to cash ISAs, with 58 per cent unwilling to transfer funds to stocks and shares alternatives if limits were reduced, rising to 74 per cent amongst older generations.
Yorkshire Building Society is sounding alarm over growing anxiety among savers
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YORKSHIRE BUILDING SOCIETYAndrew Wright, Paragon Bank’s head of Savings, warned: “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.”
He urged immediate action, stating: “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.”
Chris Irwin, Yorkshire Building Society’s director, added: “People are looking for stability and reassurance, and the continued uncertainty around ISAs isn’t helping.
“At Yorkshire Building Society, we’re standing up for our savers and campaigning to protect savings allowances. We’re committed to helping people continue to build financial security and navigate life’s challenges.”