More than five million savings accounts are now exposed to income tax due to frozen tax thresholds, according to an analysis by Yorkshire Building Society. The building society found that 5.3 million non-ISA savings accounts were forecast to generate more than £1,000 in annual interest in January 2026, up from just 462,000 in January 2018 — an increase of 1,047%.
Older savers hit hardest by frozen allowances
Among those affected, 2.1 million people aged 65 and over are expected to face an Income Tax bill from HMRC on their savings income. That figure is more than four times the 517,000 recorded in 2022/23, Yorkshire Building Society reported. A Freedom of Information request submitted by Paragon to HMRC found the total tax liability on savings income among people aged 65 and over is forecast to reach £3.34 billion in 2026/27, compared with £795 million four years earlier.
The sharp rise is driven by the combination of frozen Personal Savings Allowances and higher interest rates, which have pushed more savers above the tax threshold. The Personal Savings Allowance allows basic-rate taxpayers to earn up to £1,000 in savings interest tax-free each year, while higher-rate taxpayers can earn up to £500. Additional-rate taxpayers receive no allowance.
Yorkshire Building Society calls for urgent reform
Tina Hughes, director of savings at Yorkshire Building Society, said: “The scale of this shift is staggering. Our analysis shows that the number of savings accounts potentially exposed to tax has gone from under half a million to well over five million in just a few years. This isn’t about people suddenly becoming wealthy — it’s about a frozen allowance colliding with much higher interest rates. People doing the responsible thing — saving for a home, for emergencies or for the future — are now being punished by outdated rules. The Personal Savings Allowance urgently needs reform so it keeps pace with reality and supports savers, rather than catching them out.”
Finance experts echo warning on fiscal drag
Rachel Springall, finance expert at Moneyfactscompare, added: “Savers are earning higher rates of interest, but they are also becoming ever more exposed to tax due to fiscal drag. The fact that there are millions of accounts becoming liable to tax over the past five years alone just shows how the Personal Savings Allowance has not moved on with the times and is in dire need of review to protect savers.”
Yorkshire Building Society, which competes with NatWest, HSBC UK, Nationwide, Santander, Lloyds, Barclays and other major banks, said the analysis highlights the growing burden on ordinary savers. The frozen Personal Savings Allowance, set at £1,000 for basic-rate taxpayers since 2016, has not been adjusted for inflation or rising interest rates, leaving millions of savers facing unexpected tax bills from HMRC.
