More than 2.6 million people in the UK are expected to pay tax on savings interest in the 2025-26 financial year, according to official figures, with the number rising by over 120,000 from the previous year. The increase is driven by frozen tax allowances and higher interest rates, pushing many basic-rate taxpayers into liability.
Among those affected are 1.15 million basic-rate taxpayers, many unaware they owe tax despite modest incomes. The average tax bill is £2,300, contributing to a total HMRC haul exceeding £6 billion—more than four times the amount collected five years ago. The number of savers caught has surged from 800,000 in 2020-21.
Under current rules, basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, but with savings accounts paying around 5%, someone with £20,000 in the bank may now exceed the threshold. Higher-rate taxpayers have a £500 allowance, while additional-rate taxpayers have none. These thresholds have not been increased since 2016.
ISAs remain a tax-free option, and the Treasury has reaffirmed the £20,000 annual ISA limit after speculation of reform was shelved. However, HMRC faces data-matching challenges, admitting that in up to one in five cases, bank-provided information is unreadable. The government plans to require savings providers to collect National Insurance numbers to improve enforcement.
With one-year fixed savings rates around 4% and easy-access accounts near 2.7%, savers are urged to consider tax-efficient options like ISAs while they remain available.
