The UK government is preparing to send out tax demands to savers, with HM Revenue and Customs (HMRC) expecting to collect an estimated £9.1 billion from taxes on bank interest by the 2027-28 tax year.
This move follows the announcement made last year by Rachel Reeves, the former Labour Party Chancellor, who revealed plans to increase the savings tax rate by two percentage points starting April 2027. This measure, now overseen by Prime Minister Andy Burnham and Chancellor John Healey, aims to generate an additional £900 million for the Treasury, boosting income from £8.2 billion in the current tax year to £9.1 billion.
The average tax bill on bank interest is projected to reach a record £1,940 in 2027-28, an increase from £1,810 this year. Ian Futcher, a representative of wealth management firm Quilter, described the situation as a “perfect cocktail” due to the combination of higher tax rates on savings and frozen tax allowances. He also noted that if interest rates remain high or continue to rise, more savers could exceed their personal savings allowances, resulting in increased tax liabilities.
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Sarah Coles, from the investment platform AJ Bell, expressed concern about the growing financial pressure on savers, particularly retirees who have accumulated savings over a lifetime. She pointed out that many older individuals paying tax on their savings will face increased tax bills in the next tax year.
In response, a Treasury spokesperson emphasised that approximately 85% of people with savings income currently pay no tax on it, thanks to generous tax reliefs. The spokesperson added that the government is committed to making the tax system fairer by ensuring those with the largest incomes from assets contribute more to support vital public services.