The number of people paying tax on their savings income is set to quadruple in just four years, according to data by AJ Bell.
In a Freedom of Information request made to HM Revenue & Customs, it revealed that 2.64mn people are expected to be hit with tax on their savings in the 2025/26 tax year, up from 647,000 in 2021/22.
The rise comes as interest rates have soared and the personal savings allowance (PSA) has remained frozen for over nine years.
The PSA allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher rate taxpayers get just £500.
Additional rate taxpayers get no allowance at all and pay tax on all interest earned outside of tax-free wrappers like Isas.
As a result, the number of basic rate taxpayers facing savings tax will rise from 494,000 in 2022/23 to a projected 1.15mn by 2025/26, more than doubling in just three years.
Meanwhile, the number of higher rate taxpayers affected will rise to 897,000 from 405,000 in the same period.
AJ Bell director of personal finance, Laura Suter, said: “These numbers highlight how the rising tide of interest rates has swept hundreds of thousands more savers into the tax bracket.
“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.”
Additionally, AJ Bell’s discovered figures show that HMRC is taxing more people on savings interest than previously forecast.
The investment platform pointed out that it submitted a similar FOI request in 2024 which showed that HMRC, at the time, projected 2.1mn savers would be taxed in 2024/25.
However, this estimate has risen over 25 per cent to 2.52mn since then and is expected to climb to 2.64mn by 2025/26.
This means that one in 25 basic-rate taxpayers will pay tax on their savings this tax year, up from less than one in 100 four years ago and one in eight higher rate taxpayers will be handing over some of their savings interest to HMRC compared to one in 25 four years ago.
On top of that, 45 per cent of all additional rate taxpayers are paying tax on their savings interest.
tom.dunstan@ft.com
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