Millions of over-65s across the UK are increasingly being slapped with tax on savings interest, but are you at risk of paying more to HM Revenue and Customs (HMRC).
More than 2.1 million pensioners aged 65 and above are set to owe income tax on their savings interest, according to data obtained through a Freedom of Information request filed by Paragon with HMRC.
The figures represent a fourfold surge from the 517,000 older savers who faced such a liability in 2022/23.
This surge in figures means millions of retirees are being drawn into paying tax on the interest earned by their savings pots, despite not owing anything just a few years ago.
Are you at risk of paying more tax on savings interest?
|
GETTYThe data paints a stark picture of how rapidly the tax burden on retirement-age savers has escalated in a short period.
Analysts note the primary driver behind this surge is the prolonged freeze on tax thresholds, which has caused ever greater numbers of people to be pulled into paying tax purely through inflationary increases in their income.
Paragon’s FOI request revealed that the aggregate tax bill on savings income for the over-65s is projected to hit £3.34billion in 2026/27.
That marks a staggering increase from the £795 million recorded four years prior, representing more than a fourfold jump in the total amount owed.
How much will HMRC rake in from the so-called savings tax? | HMRC / AJ BELL
As inflation increases wages, frozen tax bands mean people end up paying higher tax without pay increases in real-terms | GOV.UK
Several tax-free allowances determine whether a pensioner owes tax on their savings interest.
The personal allowance permits individuals to receive up to £12,570 annually from all income sources, including employment, pensions and savings interest, without incurring any tax.
Beyond that threshold, the personal savings allowance offers additional relief depending on one’s tax band.
Additional-rate taxpayers at 45 per cent get no such allowance whatsoever.
John Healey is the new Chancellor | GETTY
A further relief, called the Starting Rate for Savings, provides up to £5,000 of tax-free savings interest for those whose non-savings income falls below £17,570, though this tapers away pound for pound above the personal allowance.
Pensioners aged 65 and over are projected to make up 47 per cent of all individuals owing Income Tax on savings interest in 2026/27.
That proportion has climbed from 42 per cent in 2022/23, illustrating how disproportionately the frozen thresholds are affecting those in retirement.
The shift means that nearly half of everyone in the country paying tax on their savings income will be of pension age.