HMRC issues warning for 2.07 million people who have a savings account
Two million savers are set to be hit with shock tax bills - thanks to frozen thresholds and high interest rates. The rates, coupled with frozen thresholds imposed by the Conservative Party government, are likely to drag more savers into the tax net.
HMRC warns more than 2 million savers are expected to be hit with a tax bill in the 2024-25 tax year, up from 1.17 million in 2022-23. For higher and additional rate taxpayers, the combined total will rise from 630,000 to 1,061,000 over the same period.
AJ Bell data shows that of the 2.07 million people expected to pay tax on their savings this year, 954,000 were basic rate taxpayers. In 2021-22 this figure was just 226,000, according to figures released by the experts, ahead of the new tax year.
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The personal savings allowance lets basic rate taxpayers earn up to £1,000 in interest on their savings tax-free. Higher rate taxpayers can earn £500 under the rules from HMRC, the government tax department and taxman.
The number of higher rate taxpayers paying levies on their savings is expected to more than triple from 158,000 to 590,000 between 2021-22 and 2024-25. Laura Suter, of AJ Bell, said: “Previously the majority of people didn’t need to worry about paying tax on their savings, as interest rates were low and the personal savings allowance was sufficient to cover most people.
“But now a tricky combination of interest rates rising, cash ISAs being shunned for decades, more people moving into higher tax brackets and seeing their personal savings allowance cut, and the tax-free allowance being frozen means lots of people are being dragged into the tax.”
Speaking ahead of the Budget, Shaun Moore, of wealth manager Quilter, said: “Due to the actions of the outgoing Conservative government and the likely inertia of the current Labour government, more people will pay higher amounts of tax on the interest earned from their savings.
“Unfortunately, things are unlikely to change any time soon, making the benefits of ISAs ever more attractive.”