Millions of Britons are being dragged into paying tax on their savings as frozen allowances and government tax policies leave households facing increasingly large bills.
New figures show that 144,000 people are expected to pay £5,000 or more in tax on savings interest during the 2026-27 tax year. That is almost three times the 52,700 recorded in 2022-23, a rise of 173 per cent.
The data highlights the growing impact of fiscal drag, where tax thresholds remain frozen while savings balances and interest rates rise, pulling more people into higher tax liabilities without any increase in tax-free allowances.
More than 2.7 million savers are expected to pay tax on their savings income in 2026-27, up from 2.2 million just three years earlier.
Under current rules, basic-rate taxpayers can earn up to £1,000 in savings interest tax-free each year, while higher-rate taxpayers receive an allowance of just £500. Additional-rate taxpayers receive no savings allowance at all.
Despite inflation, rising interest rates and increasing household costs, these allowances have remained unchanged since they were introduced in 2016.
The result is that many savers are now being penalised simply for keeping money in the bank.
The figures are likely to fuel criticism of Chancellor Rachel Reeves and Labour’s wider tax strategy. While ministers have repeatedly promised economic growth and support for working people, more savers are finding themselves caught by tax thresholds that have failed to keep pace with changing economic conditions.
The pressure is expected to intensify further from April 2027 when tax rates on savings income are scheduled to rise by two percentage points.
At the same time, Labour has announced plans to reduce the annual cash ISA allowance for under-65s from £20,000 to £12,000. Ministers argue the move will encourage greater investment in stocks and shares, but critics warn it will leave many prudent savers with fewer opportunities to shelter their money from tax.
The combination of frozen allowances, higher taxes and reduced tax-efficient savings options has prompted concerns that households are being punished for doing the financially responsible thing.
Recent reports have also raised concerns about errors in the taxation of savings interest, with some savers reportedly receiving demands for tax on interest that either did not exist or was already protected within ISA accounts.
The Treasury has defended its approach, arguing that most savers will continue to pay no tax on their savings and insisting that reforms to ISA rules are designed to improve long-term returns for investors.
However, the latest figures suggest that a growing number of households are being drawn into the savings tax net, with many facing bills that would have been unimaginable when the personal savings allowance was first introduced a decade ago.
For critics, it is further evidence that Labour’s promise not to raise taxes is increasingly difficult to square with the reality facing millions of ordinary savers.
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