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More than 3.35 million people are projected to pay tax on the interest from their savings this year, according to new data. This is up from 3.06 million in 2020–21, and is projected to increase further as Rachel Reeves is expected to keep income thresholds frozen, and interest rates remain elevated, experts have said. HMRC data acquired by Nottingham Building Society shows that the number of individuals declaring taxable interest through self-assessment has, apart from of a slight dip in 2021-22, risen steadily over the past five years, while official projections show a sharp increase in the total number of people paying income tax, from 34.5million in 2022-23 to 39.1million by 2025-26.
Specialists say this includes a projected 30.8million basic rate and savers rate taxpayers, up 6.8% over the same period, making up nearly 79% of all taxpayers. The number of higher rate taxpayers is now expected to jump by nearly 39% to 7.08million, while the number of additional rate taxpayers is set to more than double, up 115% to 1.23million. These shifts are “largely being driven” by fiscal drag, as frozen thresholds pull more people into higher tax bands.
This is “despite only modest nominal income growth”, experts emphasise.
At her autumn Budget, the Chancellor is widely expected to extend a freeze on income tax thresholds to raise funds after the Government U-turned on proposed welfare, leaving her with a hole to fill in the country’s finances.
The freeze was introduced by former Conservative Chancellor Jeremy Hunt, and is due to end in 2028.
Ms Reeves is also thought to be considering cutting the £20,000 tax-free limit on cash ISAs in order to persuade savers to invest in UK companies, thereby sparking growth.
Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “These figures highlight a growing and often hidden tax burden on ordinary savers.
“With the number of basic-rate taxpayers projected to rise by nearly two million in just three years, and the number of additional-rate taxpayers set to more than double, more people than ever are being pulled into paying tax on their hard-earned savings.
“At a time when families are trying to build financial resilience amid frozen thresholds and rising living costs, the Government should be doing more to reward and protect savers.”
She added: “We support the Government’s ambition to encourage investment and grow the economy, but limiting savers’ access to savings vehicles like the Cash ISA is the wrong way to do it.
“Reform should focus on simplifying and strengthening it, not introducing new barriers or caps.
“At Nottingham Building Society, we’re seeing this shift play out in real time. More than half of our fixed-rate ISA customers used the full £20,000 allowance last year, rising to 65% among our branch savers.
“These are not high-net-worth investors, but everyday people saving for a deposit, building a retirement fund, or creating a financial safety net.
