Number of savers at risk of shock tax bill doubles in just a year

Savers could find themselves at risk of a surprise tax bill, as new data shows six million accounts are now at risk of paying tax on their savings

 
New analysis from Shawbrook of CACI data* found that over six million saving accounts in April could be at risk of tax by breaching the £1,000 Personal Savings Allowance of a standard rate taxpayer. With interest rates remaining high, savers are being urged to take into account not just the rate they get on their savings, but it’s also critical they understand the potential tax implications on the interest.

For higher earners, using ISAs is even more important due to the reduced PSA of just £500 for higher rate taxpayers and no PSA at all for additional rate taxpayers.

Current high interest rates and frozen tax thresholds are driving many more to consider the possibility of paying tax on their savings. But for those who aren’t utilising tax-efficient savings such as ISAs, they could be in for a shock. For example, a basic rate taxpayer earning £2,000 in interest, could find themselves with a tax bill of £200, however, for higher rate taxpayers this would be £600 and additional rate taxpayers would be £900, which would significantly reduce how much your savings earn for you.

 
Adam Thrower, Head of Savings at Shawbrook said:
 

“For many years, tax on savings has been something of an aside due to low rates, but with high interest and frozen thresholds, this becomes more of a concern. Savers must now consider tax and the impact this might have on their overall returns as a central issue when deciding where to place their hard earned money.  Thankfully, through ISAs people can save £20,000 per person tax-free, which remains the number one way to save tax efficiently.

As we approach the next Bank of England decision, savers might want to consider fixed-term ISAs, locking in high rates for a year longer. With the Bank of England’s interest rates likely to have peaked, there is growing anticipation of the first cut for some time, and when it does arrive this could reduce interest rates offered on savings. Locking in now could secure higher interest rates for the longer team, and using ISAs to do that can keep your money free from any surprise tax bills.”

*CACI calculations based on data from 40 contributing members of our monthly Current Account and Savings Database (CSDB). 6M represents the number of accounts in April 2024 that could potentially earn more than £1,000 in interest, the maximum personal savings allowance for basic rate taxpayers. In April 2023 this was 3M.