Higher-rate taxpayers with £12,500 in savings could face HMRC bills as new analysis reveals a massive surge in taxable savings accounts. Yorkshire Building Society found that 5.3 million non-ISA savings accounts are now forecast to generate more than £1,000 in annual interest, compared to just 462,000 in January 2018 – a 1,047% increase.
Frozen Allowance and Rising Rates
The building society attributes this shift to rising savings rates and the frozen Personal Savings Allowance (PSA), which has remained unchanged for nearly a decade. The PSA allows basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers get a £500 allowance.
According to Yorkshire Building Society's calculations, a basic-rate taxpayer needs only £25,000 saved to hit the £1,000 threshold, while a higher-rate taxpayer reaches their £500 limit with just £12,500 saved.
Expert Reactions
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."
She added: "This isn't about people suddenly becoming wealthy – it's about a frozen allowance colliding with much higher interest rates."
Impact on Savers
Rachel Springall, a finance expert at Moneyfacts, commented: "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."
Springall also warned that those saving for a home might unknowingly breach their PSA due to higher interest rates, and advised savers to consider ISAs to shield their money from tax.
