Higher-rate taxpayers earning over £50,000 have been warned that savings of just £12,500 could now trigger a tax liability, as frozen thresholds and elevated interest rates push millions more people into paying tax on their savings interest. New analysis by Yorkshire Building Society shows a dramatic surge in the number of non-ISA savings accounts projected to generate over £1,000 in interest, soaring by 1,047% since 2018.
Five million accounts now exposed
In January 2018, approximately 462,000 accounts would have generated more than £1,000 in interest, potentially triggering a tax liability. After a brief decline during the pandemic's low-rate period, the figure rocketed as rates climbed, reaching 2.5 million in January 2023 and surging to the current figure of 5.3 million—more than eleven times higher than in 2018.
The Personal Savings Allowance (PSA) determines how much interest you can earn on savings annually without incurring tax. Basic-rate taxpayers may earn up to £1,000 in interest tax-free, higher-rate taxpayers up to £500, while additional-rate taxpayers receive no allowance. Interest earned beyond these thresholds is taxed at your standard income tax rate.
Allowance frozen while rates rise
When the PSA was introduced on 6 April 2016, most easy access accounts offered interest rates of 1% or below. Today, most accounts pay 3% or more. In 2016, basic-rate taxpayers could have deposited as much as £100,000 into a typical savings account; in 2026, savers can only set aside approximately £25,000 at rates of 4% before exceeding their allowance. For those earning above £50,271 and subject to higher-rate tax, that figure drops to around £12,500.
Tina Hughes, Director of Savings at Yorkshire Building Society, said: "The scale of this shift is staggering. Our analysis shows that the number of savings accounts potentially exposed to tax has gone from under half a million to well over five million in just a few years. This isn't about people suddenly becoming wealthy - it's about a frozen allowance colliding with much higher interest rates."
Savers unaware of tax obligations
According to the Financial Conduct Authority (FCA), individuals typically hold between 3 and 5 savings products across 2-3 providers, suggesting that many liable for tax on savings may be unaware of their obligation. In January 2022, merely 172,000 accounts were potentially subject to tax; within a year, that number had increased more than fourteen-fold.
Research from Yorkshire Building Society indicates that 36% of individuals have never heard of the Personal Savings Allowance, while only 31% understand how to settle the tax should they surpass it. With the typical median house deposit now standing at £36,500, millions saving towards a first property or establishing a financial cushion are finding themselves liable to pay tax simply for maintaining sensible levels of savings.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: "Savers are earning higher rates of interest, but they are also becoming ever more exposed to tax due to fiscal drag. The fact that there are millions of accounts becoming liable to tax over the past five years alone just shows how the Personal Savings Allowance has not moved on with the times and is in dire need of review to protect savers."
A Freedom of Information request submitted by Paragon to HMRC found the total tax liability on savings income among people aged 65 and over is forecast to reach £3.34 billion in 2026/27, compared with £795 million four years earlier. Those aged 65 and over are expected to account for almost half, 47%, of all taxpayers with an Income Tax liability on savings income in 2026/27, up from 42% in 2022/23.
