Millions of UK Over-65s Face Increased Tax on Savings Interest
New analysis indicates a significant rise in individuals over 65 paying tax on savings interest, projected to impact millions by 2026/27. Their collective tax bill is expected to reach billions.
Key takeaways
- Over 2 million Britons aged 65+ are projected to pay tax on savings interest by 2026/27.
- This represents a fourfold increase since 2022/23.
- The total tax liability for this age group is expected to reach £3.34 billion in 2026/27.
- Individuals 65 and older will retain a £20,000 cash ISA allowance from 2027/28, unlike younger savers.
What Happened
Millions of Britons aged 65 and older are increasingly liable for tax on their savings interest, according to new research. Analysis from Paragon Bank, based on HMRC data obtained via a Freedom of Information request, forecasts that 2.1 million retirement-age savers will owe tax on their savings income in the 2026/27 tax year.
This figure represents a more than fourfold increase from the 517,000 individuals in the same age group who paid tax on savings interest in the 2022/23 tax year. The total tax liability for this demographic is projected to reach £3.34 billion in 2026/27, a substantial jump from £795 million four years prior. Savers aged 65 and over are expected to constitute nearly half of all individuals paying income tax on savings interest by 2026/27.
Background
Savings interest is a significant source of income for many during retirement. The rise in the number of older savers paying tax on this income coincides with elevated interest rates. Analysts note that this trend places a growing tax burden on individuals who rely on their savings for financial security in later life.
A change in ISA rules starting from the 2027/28 tax year may offer some relief. Individuals aged 65 and above will retain their full £20,000 annual cash ISA allowance. In contrast, those aged 64 and younger will see their cash ISA allowance reduced to £12,000. This distinction is expected to provide an advantage to older savers in shielding their interest income from taxation.
Key Facts
- An estimated 2.1 million people aged 65 and over are forecast to pay tax on savings interest in the 2026/27 tax year.
- This is a rise from 517,000 individuals in the 2022/23 tax year.
- The projected collective tax bill for this group in 2026/27 is £3.34 billion, up from £795 million four years earlier.
- By 2026/27, individuals aged 65 and over are expected to represent 47% of all taxpayers with savings interest income liability, an increase from 42% in 2022/23.
- From the 2027/28 tax year, those 65 and over will maintain a £20,000 cash ISA allowance, while those younger will have a £12,000 allowance.
Sources reviewed
Project Chintan independently synthesized and analyzed information cross-checked across the sources listed above.
