Calls for Chancellor to double personal savings allowance as new data reveals 1.8 million pay tax on cash accounts – AJ Bell
- On July 20, 2023
- By GrowthInvest Marketing
Almost 1.8 million UK savers are paying tax on interest earned from banks and building societies, as rising interest rates and frozen tax thresholds combine to punish those with cash savings.
The data, obtained by investment platform AJ Bell, reveals a huge leap last year in the number of people hit with a tax bill on cash savings interest. Figures obtained following an FOI request to HMRC show that, in the tax year ended this April, the number of savers snared rocketed 82% to 1.77 million.
Despite cash savings losing value in real terms, with the best savings rates still lagging well behind inflation, taxpayers owed HMRC over £3.4bn in tax on money earned through cash accounts last year.
It means the average bill incurred by someone stung with tax on cash savings amounted to almost £2,000, although this is likely skewed higher by some wealthy individuals paying large tax bills if they hold considerable sums in cash.
The figures could yet worsen, with more people likely to be caught as interest rates rise and the personal savings allowance remains frozen. The government is expected to land a mammoth £6.6bn tax take this year, with even more savers likely to be affected.
Tax bills on cash interest exceeding the personal savings allowance are paid either through self-assessment, or deducted from income through a tax code adjustment. Many won’t have been aware they owed tax on cash savings interest and will unexpectedly find their tax code changed to deduct the money from their payslip.
AJ Bell is calling on the Chancellor to end the freeze on the personal savings allowance, which has been set at the same level since 2016. Alongside recent rate rises, the freeze means even those with prudent rainy day savings are being hit with tax penalties.
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