Figures released by HMRC in July 2023 showed that an extra 1 million taxpayers would pay tax on savings interest this year.
The Government expects 1.4 million basic rate taxpayers to pay tax on their savings interest in the current tax year, as well as 842,000 higher rate taxpayers and 452,000 additional rate taxpayers, a Freedom of Information request revealed.
The “personal savings allowance” lets basic rate taxpayers earn up to £1,000 in interest on their savings tax-free, and higher rate payers £500. Additional rate taxpayers do not receive an allowance. Interest is taxed at a saver’s marginal rate.
These limits have not changed since they were introduced by former chancellor George Osborne in 2016.
The tax cost savers £7.2bn in 2022-23, according to analysis by the Centre for Economics and Business Research think tank. This is a significant increase on previous years. The tax raised £1.4bn in 2020-21.
The analysis is based on data compiled by business consultancy CACI from 40 banks, savings providers and building societies on the size of deposits in customers’ savings accounts. It assumes the accounts are owned by basic rate taxpayers, giving them a £1,000 tax-free allowance.