Pensioners account for almost half (44%) of all taxpayers facing an HM Revenue & Customs bill for interest earned on their cash savings, new data from AJ Bell shows.
A Freedom of Information request from the investment platform found HMRC expects 1.16 million people over state pension age to incur an income tax liability on savings in the 2025/26 tax year.
It means that pensioners account for nearly half of the 2.64 million taxpayers due to pay income tax on cash savings interest earned in the current financial year.
Among basic rate taxpayers, pensioners account for almost two-thirds of those with a savings income tax liability.
AJ Bell has previously warned of sharp growth in the number of individuals paying tax on savings income, driven by a combination of rising interest rates and frozen tax thresholds.
Charlene Young, senior pensions and savings expert at AJ Bell, said: “Many people may not realise how tax applies on the income earned from savings accounts. Income tax applies to earnings and pension income first, before savings income and dividends at your marginal rate.
“This means the Government could come calling for 20p, 40p or even 45p from every pound of interest your bank pays out, depending on your other income.
“Most people have a personal savings allowance, which offers some protection from the taxman’s clutches. Likewise, ISAs and pensions are the perfect way to shield your savings and investments and maximise your returns.
“However, millions of taxpayers are still being caught out and that’s particularly true for pensioners who account for nearly half the total.”
Young said it is common in retirement to hold more cash, with people often looking to de-risk some of their investments.
“With an immediate need to take income from assets it is natural to focus a little more on capital preservation, meaning cash becomes an increasingly useful tool, despite the risks from inflation over the long term.
“Unfortunately, that appears to be leading to a large number of pensioners suffering a tax bill on their cash savings, with increasing numbers being dragged into higher tax bands too,” Young added.
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