More than two million people aged 65 and over are expected to pay tax on their savings interest this year, according to new analysis from Paragon Bank. Around 2.1 million people in that age group are forecast to have an Income Tax liability on their savings income during the 2026/27 tax year.
The figure has more than quadrupled from 517,000 in 2022/23, while the total tax liability on savings income among people aged 65 and over is forecast to reach £3.34 billion, compared with £795 million four years earlier.
HMRC data and forecasts
The figures were obtained by Paragon through a Freedom of Information request to HM Revenue and Customs (HMRC). Figures covering 2025/26 and 2026/27 are forecasts. People aged 65 and over are expected to account for almost half of all taxpayers with an Income Tax liability on savings income this year, with 47 per cent forecast to be in this age group, compared with 42 per cent in 2022/23.
Tax-free savings allowances
Most people can earn some interest on their savings without paying tax, but the amount depends on their other income and Income Tax band. Basic-rate taxpayers can receive up to £1,000 of savings interest each tax year through the Personal Savings Allowance without paying tax on it. The allowance falls to £500 for higher-rate taxpayers, while additional-rate taxpayers do not receive a Personal Savings Allowance.
Some people on lower incomes may also qualify for the starting rate for savings, which can provide up to £5,000 of tax-free interest. However, the amount available reduces by £1 for every £1 of other income above the Personal Allowance. People with other income of £17,570 or more are not eligible for the starting rate for savings. Interest earned within tax-free accounts such as Individual Savings Accounts (ISAs) does not count towards the Personal Savings Allowance.
Exceeding the allowance
Tax is due on savings interest above the relevant allowances at your usual rate of Income Tax. People who complete a Self Assessment tax return should report their savings interest through their return. HMRC says anyone with more than £10,000 of income from savings and investments needs to register for Self Assessment.
For people who are employed or receive a pension, HMRC can change their tax code to collect the tax automatically. It estimates interest for the current year using the amount received during the previous year. Banks and building societies also report savings interest to HMRC at the end of the tax year.
Cash ISA changes for over-65s
People aged 65 and over will retain the full £20,000 Cash ISA allowance when new rules come into force on April 6, 2027. The UK Government has confirmed that the Cash ISA limit for people under 65 will fall to £12,000, although the overall annual ISA limit will remain at £20,000. The higher Cash ISA allowance will apply from the start of the tax year in which someone turns 65.
Andrew Wright, Head of Savings at Paragon Bank, said: “Millions of older savers are being pulled into the tax net, putting more of their retirement savings at risk, with four times as many savers aged 65 plus incurring a tax bill on their interest than just four years ago. With savings often providing vital financial security later in life, it is important to regularly review where your money is held. Making full use of your ISA allowance can help protect more of your hard-earned interest from tax and those aged 65+ have the benefit of retaining the full £20,000 cash ISA allowance from next tax year.”
