HMRC is set to send tax bills to as many as five million households with savings accounts, new analysis by Yorkshire Building Society has revealed. The bank says an ‘unprecedented’ number of non-ISA savings accounts will breach the Personal Savings Allowance (PSA), triggering HMRC tax bills or a change of tax code to repay the money to the taxman.
Surge in taxable savings accounts
The number of non-ISA savings accounts set to generate more than £1,000 interest in a single tax year has increased by 1,047% since 2018, according to CACI figures, driven by a mix of inflation, higher interest rates and frozen tax thresholds.
Yorkshire Building Society said: “The analysis shows that in January 2018, around 462,000 accounts would have earned more than £1,000 in interest and be potentially liable for tax. Despite a temporary dip during the ultra low rate years of the pandemic, the number exploded as rates rose — reaching 2.5 million in January 2023, before surging to today’s figure of 5.3 million, which remains more than eleven times higher than in 2018.”
Low awareness of the allowance
According to the Financial Conduct Authority (FCA), people hold between 3 and 5 savings products across 2-3 providers, meaning the number of people who could be liable to pay tax could be doing so without awareness.
The Personal Savings Allowance is the amount of interest you can earn from savings each year without paying tax on it. Basic rate taxpayers (earning less than £50,270) can earn up to £1,000 in interest tax-free, higher rate taxpayers (above £50,270) can earn up to £500, while additional rate taxpayers (above £125,140) do not receive any allowance. Any interest earned above these limits is taxed at your usual income tax rate.
Yorkshire Building Society adds: “Despite the scale of the issue, awareness of PSA remains low. Yorkshire Building Society research shows that 36% of people have never heard of the Personal Savings Allowance, and only 31% know how to pay the tax if they exceed it — increasing the risk of accidental non payment and unexpected bills.”
Calls for reform
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.”
“People doing the responsible thing — saving for a home, for emergencies or for the future — are now being punished by outdated rules. The Personal Savings Allowance urgently needs reform so it keeps pace with reality and supports savers, rather than catching them out.”
Yorkshire Building Society is urging savers to review their savings, understand how much interest they are earning across all accounts, and make full use of tax efficient options such as ISAs — particularly for those holding £20,000 or more in competitive savings products.
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.
“Those who have been working hard to save for a home might not realise they could be breaching their PSA due to higher interest rates. To help savers shield their hard-earned cash from tax, it’s wise to take advantage of ISAs. As around a third of consumers do not really understand what the PSA is, it’s worth seeking independent advice to assess any savings interest that may be liable to tax before it becomes an unwelcome surprise.”
