HMRC is set to send tax demand letters worth £5,000 to 144,000 households, delivering a severe blow to savers amid the ongoing cost of living crisis. New figures reveal that the number of individuals expected to receive tax bills of at least £5,000 has surged to 144,000 for the 2026-27 tax year.
Sharp Increase in Tax Liabilities
According to Paragon Bank, 52,700 individuals had a tax liability exceeding £5,000 on savings income in the 2022-23 tax year. This figure has more than doubled to 117,000 in 2023-24, rising further to 133,000 in 2024-25 and 137,000 in 2025-26, with a projected 144,000 for 2026-27.
Andrew Wright, Head of Savings at Paragon Bank, commented: “These figures show that tax on savings is no longer an issue affecting just a small number of people. As balances have grown and rates have remained relatively high, far more savers are now finding themselves with substantial tax bills on their interest.”
Wright added: “With CACI data showing 1.1 million non-ISA savings accounts hold more than £100,000, it is clear there are a lot of people with larger balances who may need to think carefully about how their money is structured. Reviewing your savings regularly, checking the rate you are earning, and making use of tax-efficient options where appropriate can help ensure more of your return stays in your pocket.”
Understanding the Personal Savings Allowance
Under HMRC rules, basic-rate taxpayers have a Personal Savings Allowance of £1,000. Interest earned above this threshold is subject to 20% tax, depending on individual circumstances. Higher-rate taxpayers have a £500 allowance, after which they face 40% tax on interest. Additional-rate taxpayers have no allowance and pay 45% on all savings interest.
ISA Rules and Changes
Currently, individuals can save up to £20,000 per year in ISAs, which can be held in cash, stocks and shares, or a combination. However, from next year, the cash ISA allowance will be reduced to £12,000 for those under 65. The full £20,000 allowance will still be available, but only if £8,000 is invested in stocks and shares.
Paragon's analysis of CACI data reveals that there are 1.1 million instant access non-ISA savings accounts with balances of £100,000 or more, holding a combined value of nearly £261 billion.
