HMRC warning over 'surprise' and unwelcome letter landing on doorstep

Millions of savers will wake up to a surprise HMRC letter on their doorstep, it has been warned. Nearly 2.1 million people are expected to pay tax on their savings this year, a sharp increase from around 650,000 just three years ago, new research shows.

This surge is primarily due to rising interest rates and frozen Personal Savings Allowances (PSA), which have remained unchanged since their introduction over eight years ago. Laura Suter, director of personal finance at AJ Bell, warned that those enjoying high interest rates could get a shock bill from HMRC. She explained: "For those who have ditched and switched to get better rates and are now going to be hit with tax on their money, they often won’t realise until a brown letter lands on their doormat.

"Those filling out a self-assessment tax return will declare any savings interest, and subsequent tax due. But, for those taxed under PAYE, HMRC will calculate any tax due based on information sent to them by banks and building societies.

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"It means many taxpayers will find there is a deduction made from their payslip each month, often before they’ve even realised they owe any money to the taxman." She said: "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.

"The figures are lower than previous estimates from the Government, which is likely due to a number of factors. We know more savers have used cash ISAs to protect their savings from tax, thanks to high-profile campaigns about the number of people who are likely to be hit with tax bills."

Ms Suter said: ""Bank of England data shows that April was a record-breaking month for cash ISAs, with £11.7billion being put in the accounts, marking the highest amount since ISAs were introduced in 1999. This trend has continued, with more people using ISAs since tax-year end to protect their cash from unwanted tax."