Two million people aged 65 and over are set to receive income tax bills on their savings interest, according to new figures from HMRC. The data, obtained by Paragon Bank, shows that total tax liability on savings income for this age group is forecast to reach £3.34 billion in the 2026/27 tax year, with those aged 65 and over expected to account for almost half of all savings tax paid.
The warning comes after Prime Minister Andy Burnham confirmed there are no current plans to review frozen tax thresholds. Since taking office, Mr Burnham has not changed the personal tax-free allowance of £12,570 or the Personal Savings Allowance (PSA), despite his focus on cost-of-living policies.
How the Personal Savings Allowance works
The Personal Savings Allowance is set at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers. This allowance applies to interest earned from bank and building society accounts, savings and credit union accounts, unit trusts, investment trusts, and open-ended investment companies. It also covers peer-to-peer lending, trust funds, payment protection insurance (PPI), government or company bonds, life annuity payments, and some life insurance contracts.
For those with other income (such as wages or a pension) below £17,570, there is an additional tax-free allowance of up to £5,000 specifically for savings interest. This amount reduces by £1 for every £1 of other income above the £12,570 Personal Allowance.
Growing number of older savers affected
Andrew Wright, Head of Savings at Paragon Bank, said: “Millions of older savers are being pulled into the tax net, putting more of their retirement savings at risk, with four times as many savers aged 65 plus incurring a tax bill on their interest than just four years ago.”
He added: “With savings often providing vital financial security later in life, it is important to regularly review where your money is held. Making full use of your ISA allowance can help protect more of your hard-earned interest from tax and those aged 65+ have the benefit of retaining the full £20,000 cash ISA allowance from next tax year.”
Impact on retirement income
The rising number of older savers facing tax bills reflects the impact of frozen thresholds, as more people's savings income exceeds the allowance. For many pensioners, savings interest is a key source of income, and the additional tax burden could reduce their disposable income.
Paragon Bank's data highlights the scale of the issue: the £3.34 billion forecast for 2026/27 represents a significant increase compared to recent years, driven by higher interest rates and the cumulative effect of threshold freezes. Savers are advised to check their tax position and consider using ISAs, which remain tax-free, to mitigate the impact.
