The number of people paying tax on their savings income is set to quadruple in just four years as frozen allowances take their toll, according to AJ Bell.
A Freedom of Information request by the investment platform showed 2.64 million people are expected to be hit with tax on their savings in the 2025/26 tax year, up from 647,000 in 2021/22.
The rise comes as interest rates have soared and the Personal Savings Allowance (PSA) has remained frozen for over nine years.
The PSA allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher rate taxpayers get just £500.
Additional rate taxpayers get no allowance at all and pay tax on all interest earned outside of tax-free wrappers like ISAs.
As a result, the number of basic rate taxpayers facing savings tax will rise from 494,000 in 2022/23 to a projected 1.15 million by 2025/26. Meanwhile, the number of higher rate taxpayers affected will surge from 405,000 to 897,000 over the same period.
AJ Bell said the figures are higher than previously forecast. A similar FOI request submitted by the firm in 2024 showed HMRC projected 2.1 million savers would be taxed in 2024/25, but the estimate has since risen over 25% to 2.52 million.
Laura Suter, director of personal finance at AJ Bell, said: “With interest rates rising sharply, more savers are being dragged into the tax net without any policy change – it’s tax by stealth.
“These numbers highlight how the rising tide of interest rates has swept hundreds of thousands more savers into the tax bracket. The Government may be benefitting from increased revenue, but many ordinary savers are worse off.”
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