A pensioner in his eighties who had never filed a tax return found himself confused and worried after receiving multiple letters from HM Revenue & Customs about outstanding tax on his savings interest. The reader, who had always relied on automatic tax deduction through his tax code, received a demand for £957.60 and feared he had fallen victim to a scam. This is Money's consumer champion Helen Crane investigated his case and uncovered a broader issue that will soon affect many more savers across the UK.
The reader's predicament stemmed from earning £11,514 in savings interest during the 2024-25 tax year, pushing him above the threshold at which tax becomes due. HMRC was correct to send him a tax bill, as basic-rate taxpayers owe tax on savings interest of £1,000 or more once they have used their personal allowance of £12,570. There is a pensioner relief that allows those with taxable income below £17,570 to claim a 0 per cent tax rate on up to £5,000 of savings interest, though this limit reduces by £1 for every £1 of other taxable income earned above the personal allowance. The problem arose because he earned more than £10,000 in savings interest, meaning HMRC required him to complete a self-assessment tax return rather than continuing with automatic tax collection.
The wider concern is that this will soon become a significant issue for many more pensioners. The full-rate state pension is set to rise to £251 a week and exceed £13,000 annually from next spring under the triple lock guarantee, bringing it above the income tax threshold for the first time. This means that pensioners receiving the full new state pension as their only income will be exempt, but those earning just £1 from a private pension or savings interest on top of it will need to submit a tax return. Those on the old state pension who exceed the threshold also will not be excused.
The reader's case also highlights how the tax system has become more complex for savers. From April 2027, income tax rates on savings and property income will increase by 4 percentage points, taking the basic, higher and additional rates to 24 per cent, 44 per cent and 49 per cent respectively, up from Chancellor Rachel Reeves's original 2 percentage point increase announced in her 2025 Budget. The additional hike was announced last month by Chancellor John Healey.
On a practical level, the reader faced difficulties navigating the system because he preferred speaking to someone rather than using online services, but encountered long waits when calling HMRC. When he did get through, he was told on several occasions that he didn't owe anything, yet continued to receive letters requesting payment. HMRC has now put him in contact with its extra support team, which offers face-to-face visits. He is expected to owe a balancing payment of £942.40 for the 2025-26 tax year, due by 31 January 2027, which his daughter has agreed to help him with.
For savers and pensioners in the UK, this means that many will soon be drawn into the self-assessment system for the first time, requiring them to file tax returns and navigate complex rules about savings allowances and tax relief.