The number of savers facing a £5,000 or more income tax bill on their savings interest has surged to 144,000 this year, according to a Freedom of Information request by Paragon Bank. This marks a 173% increase in four years, nearly tripling from 52,700 in 2023. Many savers may not be aware of the impending tax charge, warns consumer editor Katie Elliott.
Rising interest rates push savers over tax-free limits
While higher savings rates have been a rare positive amid rising living costs, they have also pushed more savers over the Personal Savings Allowance (PSA). The PSA, frozen for a decade, allows basic-rate taxpayers to earn up to £1,000 in interest tax-free, higher-rate taxpayers up to £500, and additional-rate taxpayers nothing. With average savings rates now around 4%, many are exceeding these thresholds.
Currently, 1.1 million easy access adult savings accounts hold balances of £100,000 or more, with a combined value exceeding £260.7 billion. Some of these balances are generating hundreds or thousands of pounds in taxable interest, as they sit outside tax-free wrappers.
How to avoid the tax bill
To avoid the tax, savers should consider moving their savings into an Individual Savings Account (ISA). Cash ISAs work like normal savings accounts but interest is tax-free. Stocks and Shares ISAs allow investment in assets with tax-free gains. This tax year, up to £20,000 can be saved across all ISA types without incurring tax on interest earned.
Fixed-rate ISAs currently offer up to 4.66% AER (Aldermore Bank), while easy access accounts offer up to 4.44% AER (Plum). Savers can compare top rates on moneyfactscompare.co.uk.
Aldi named cheapest supermarket
In separate news, Aldi has been crowned the cheapest UK supermarket for June, according to Which? monthly analysis. A basket of 95 branded and own-brand items cost £163.34 at Aldi, just 13p less than Lidl at £164.92. Asda followed at £190.39, then Sainsbury's with Nectar at £193.30, Tesco with Clubcard at £194.67, Morrisons with More card at £198.41, and Waitrose at £229.88.
Loyalty cards saved shoppers an average of 2.97% at Tesco and 5.17% at Sainsbury's. Other loyalty schemes include Morrisons More, Lidl Plus, Asda Rewards, Co-operative Membership, MyWaitrose, M&S Sparks, and Iceland Bonus Card.
