Rising interest rates and frozen tax thresholds will combine to push another million taxpayers into a little-known tax trap this year, new data obtained by investment platform AJ Bell reveals.
In the 2023-24 tax year it is estimated that over 2.7 million individuals will pay tax on cash interest, up by a million in a single year.
The total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years.
Obtained by investment platform AJ Bell, the figures from HMRC reinforce the growing scale of the issue first highlighted by the investment platform business last month.
AJ Bell previously called for the Chancellor to double the personal savings allowance so that those with rainy day savings aren’t caught out by tax on savings.
Today’s figures re-emphasise the case for increasing the threshold for taxing savings income. AJ Bell estimates that around 1 in 20 basic rate payers will be paying tax on cash interest, rising to 1 in 6 higher rate payers and around half of additional rate payers. In total, taxpayers are expected to hand £6.6bn to the Treasury this year from tax on the interest they earn.
The business is calling on the Chancellor to end the freeze on the personal savings allowance, which has been set at the same level since 2016.
Doubling the personal savings allowance would ensure households aren’t taxed on rainy day cash savings up to £20,000, with the top easy access account now paying 5%. Although, with some savings accounts offering 6%, a basic-rate taxpayer could hit the Personal Savings Allowance with around £16,700 in savings, or £8,400 for a higher rate taxpayer.
