Millions of savers across the UK are facing a significant financial hit after Chancellor Rachel Reeves unveiled a dual assault on personal savings in the Labour government's Autumn Budget.
A Double Blow for Savers
While the reduction of the Cash ISA allowance from £20,000 to £12,000 captured immediate attention, another crucial change will directly impact the tax paid on savings interest outside of tax-free wrappers. The government has confirmed that the rate of tax paid on savings interest will increase from April 2027.
This means that basic-rate taxpayers, who currently enjoy a £1,000 Personal Savings Allowance before tax applies, will see the tax rate on interest above this threshold jump from 20% to 22%.
What the Tax Changes Mean for You
The impact varies significantly depending on your income bracket. For higher-rate taxpayers, the tax rate on savings interest exceeding their £500 allowance will rise from 40% to 42%. Additional rate taxpayers, who currently pay 45% on all their savings interest, will face a new rate of 47%.
To put this into perspective, if you were to save your money in today's top easy-access savings account, you would need to have more than £22,000 saved for a full year to be affected by this change as a basic-rate taxpayer.
Expert Warns of Wider Impact
Sarah Coles, head of personal finance at Hargreaves Lansdown, highlighted the risks for those saving outside of tax-efficient products. "There’s a risk more people will be saving outside a tax-efficient environment and be exposed to this new tax rate," she stated.
Coles emphasised that while the Personal Savings Allowance will remain in place, protecting the first £1,000 of interest for basic rate taxpayers and £500 for higher rate taxpayers, "after that people will face a hike in their tax bill."
She advised that "it’s going to be more important than ever to take advantage of cash ISAs, where all your savings are protected from tax." The finance expert also noted that the change to the cash ISA allowance won't happen immediately, giving savers a window to maximise their current allowance.
The Autumn Budget, delivered on Wednesday, November 26, sets the stage for a substantial shift in how Britons approach saving, with these measures coming into effect in April 2027.
