Investment - Articles - Billions left exposed to tax

With the Autumn Budget looming and speculation that cash ISA thresholds could be cut, savers could be running out of time to put their hard-earned money into a tax-free wrapper, with at least 5.2 million adult savings accounts generating enough interest to incur an income tax payment.

Analysis of CACI data by Paragon Bank has revealed that £516 billion held in 5.2 million non-ISA adult savings accounts would generate interest above £1,000, breaching a basic-rate taxpayer’s Personal Savings Allowance (PSA). The figures rise to nine million accounts and £632.7 billion for accounts generating £500 in annual interest, breaching the higher-rate taxpayer PSA of £500.

Personal Savings Allowances (PSA) vary depending on income. Basic-rate taxpayers have a PSA of £1,000, whilst higher-rate taxpayers have a PSA of £500. Additional-rate taxpayers do not benefit from any PSA.

Government tax take from savings interest has risen since 2022 as savings rates have improved. HMRC data shows that the Government expects to generate £6 billion in income tax on savings interest this tax year, up from £2 billion in the 2022/23 tax year. According to HMRC data, much of this is generated from additional-rate taxpayers, who will contribute £4.2 billion this tax year, with higher-rate taxpayers contributing £1.3 billion.

Andrew Wright, Paragon Bank Head of Savings, said: “With interest rates having recovered from historic lows and the Autumn Budget just around the corner, millions of savers are leaving themselves exposed to unnecessary tax bills. Our analysis shows that £516 billion is sitting in non-ISA accounts earning enough interest to breach the basic-rate Personal Savings Allowance limits. Savers should act now to protect their hard-earned money by moving funds into a tax-free wrapper such as a Cash ISA. Time is running out, and with speculation that ISA thresholds could be cut and the Budget just days away, the window to shield your savings from tax could soon narrow.”