Around 300,000 more savers will have to pay tax on their savings interest than five years ago, stark new figures reveal.
The number has jumped from 3.06 million in 2020–21 to 3.35 million this year, according to new information obtained under Freedom of Information laws.
Harriet Guevara, from the Nottingham Building Society, which obtained the statistics, said they highlighted “a growing and often hidden tax burden on ordinary savers”.
The increase was largely driven by fiscal drag – when frozen thresholds pull more people into higher tax bands because of inflation.
Government rules allow most people to earn some interest from their savings without paying tax.
They allow savers to use their tax-free personal allowance to earn interest without paying tax, if they have not already used this on their wages, a pension or other income.
There is also a “savers’ allowance” which can allow up to £5,000-worth of interest before tax is paid.
But experts warn that the system is complicated, which is why the ability to save in tax-efficient structures such as Individual Savings Accounts (ISAs) is valuable.
Ms Guevara said the government should be doing more to reward and protect savers.
She said: “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.
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“Nottingham Building Society is calling for the government’s upcoming consultation on cash ISAs to consider the long-term impact on household finances and savings culture, and to ensure the system continues to provide meaningful protection for basic-rate savers, many of whom now find themselves unexpectedly dragged into paying tax on their interest income.”
A Treasury spokesperson said: “We are protecting the £20,000 tax-free yearly ISA savings limit, meaning the vast majority of people will continue to pay no tax on their savings.
“In addition, we are protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of Income Tax, employee National Insurance or VAT. “
