Millions of UK savings accounts are now generating enough interest to trigger a tax bill, according to new analysis by Yorkshire Building Society (YBS). The number of non-ISA savings accounts forecast to generate more than £1,000 in annual interest has surged since the Personal Savings Allowance was introduced.
Sharp rise in taxable accounts
The analysis of CACI data found around 5.3 million accounts are now expected to generate more than £1,000 in interest, compared with around 462,000 in January 2018. This represents an increase of more than 1,000 per cent.
However, the figures relate to the number of accounts rather than individual savers, and people commonly hold several savings products.
How the allowance works
The Personal Savings Allowance determines how much interest someone can receive each tax year without paying Income Tax on it. Basic-rate taxpayers can receive up to £1,000 of savings interest tax-free, while higher-rate taxpayers have an allowance of £500. Additional-rate taxpayers do not receive a Personal Savings Allowance.
Savings held within tax-free accounts such as Individual Savings Accounts (ISAs) do not count towards the allowance. People on lower incomes may also qualify for the separate starting rate for savings, which can provide up to £5,000 of savings interest tax-free, depending on other income.
Scottish savers affected
Scottish taxpayers have different Income Tax rates for earnings, but savings interest is taxed under UK-wide rates. For the 2026/27 tax year, the Personal Savings Allowance remains £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.
The increase comes as higher savings rates mean people need substantially less money in the bank before interest becomes taxable. At an interest rate of four per cent, £25,000 in savings would generate £1,000 in interest over a year. Someone entitled to only the £500 allowance could reach that amount with around £12,500 earning four per cent.
Call 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.”
She added: “People doing the responsible thing — saving for a home, for emergencies or for the future — are now being punished by outdated rules.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.”
Separate research by YBS found 36 per cent of people had never heard of the Personal Savings Allowance, while only 31 per cent knew how to pay tax if they exceeded it.
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.” She suggested savers consider using ISAs to protect interest from tax.
HMRC has an online service people can use to check whether they may have to pay tax on their savings interest and how that tax is calculated. The checker has been updated for the 2026/27 tax year, although it cannot be used by everyone, including people who file a Self Assessment tax return or receive foreign income.
