Additional-rate taxpayers are forecast to pay an average of £6,540 in income tax on their savings income in 2026/27, up from £3,710 in 2022/23, according to HMRC data obtained by Paragon Bank. The increase of £2,830, or 76%, over four years reflects frozen personal allowance thresholds and rising savings interest rates.
Bills by taxpayer group
Basic-rate taxpayers, with annual incomes of up to £50,270, are expected to pay an average of £620 in tax on savings income this tax year, compared with £580 in 2022/23, an increase of 7%. Higher-rate taxpayers face an average bill of £1,710, broadly unchanged from £1,740 four years ago.
Basic-rate taxpayers can earn up to £1,000 in savings interest each year without paying tax through the Personal Savings Allowance (PSA), while higher-rate taxpayers get a £500 allowance. Additional-rate taxpayers have no allowance, meaning tax may be due on every pound earned outside tax-free accounts.
More savers affected
Around 271,000 additional-rate earners paid income tax on interest from their savings four years ago, a figure expected to rise to 606,000 this year, the Telegraph reports. The figures come ahead of an extra four-percentage-point rise in the savings tax rate from April 2027.
Andrew Wright, head of savings at Paragon Bank, said: “Better savings rates have been good news for savers, but they can also come with a higher tax bill. Additional rate taxpayers are now expected to pay more than £6,500 on average in tax on their savings interest, almost double the amount four years ago.”
Future rate changes
Announcing the change at the Budget last month, Chancellor John Healey said higher-rate taxpayers will pay 44% tax on interest from next year, up from 40%, while the rate for additional-rate taxpayers will rise from 45% to 49%.
Mr Wright said: "Checking the total interest earned across all your accounts and making use of your ISA allowance can help you understand your position and protect more of your returns from tax." People can save up to £20,000 per year tax-free in an ISA (Individual Savings Account).
