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Research conducted by investment platform AJ Bell suggests that a convergence of the frozen Savings Allowance and increasing interest rates is poised to push additional taxpayers into paying taxes on their savings during this tax year.

In the 2023/24 tax year, it is projected that the number of individuals subject to taxation on their interest income, will swell to over 2.7 million, marking a significant increase of one million within just a single year. This year’s predicted total encompasses nearly 1.4 million basic rate taxpayers, a number that has quadrupled in just four years, according to AJ Bell’s research.

Individuals become liable for tax on the interest they earn from their savings when it surpasses the personal Savings Allowance threshold. Currently, this threshold stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers, however, receive no exemption and are required to pay taxes on the entirety of their interest income.

Laura Suter, Head of Personal Finance at AJ Bell, commented on these findings, stating, “These figures highlight just how many taxpayers are facing a tax bill for their savings interest this year – a huge leap when compared to last year. The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years.

Rising rates and a frozen personal Savings Allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day.’

If you have concerns that these changes may impact you and wish to discuss your personal financial circumstances, please do not hesitate to contact a member of the team at CB Reid.