A record 2.1 million higher and additional rate taxpayers will pay income tax on their savings interest in the 2026-27 tax year, according to data from HM Revenue & Customs. This represents a dramatic increase from just 658,000 higher earners in 2022-23, meaning the number has more than trebled in four years. The shift reflects two key factors: frozen tax thresholds that have not moved since 2021, and higher interest rates that mean savers are earning more on their deposits and crossing into taxable territory.
Within the 2.1 million figure, HMRC forecasts that approximately 1.5 million will be higher-rate taxpayers, who pay 40 per cent income tax on savings interest, while roughly 606,000 will be additional-rate payers, liable for 45 per cent tax. The higher-rate threshold sits at £50,271 annually, while the additional-rate threshold stands at £125,141. For additional-rate taxpayers, the average income tax bill on savings interest is expected to reach £6,540 in the current tax year, nearly double the £3,710 average recorded in 2022-23. These higher earners receive no personal savings allowance, meaning they must pay tax on interest from the first pound earned, whereas higher-rate taxpayers can earn up to £500 in interest tax-free.
The tax burden on savers will intensify from April 2027, when Chancellor John Healey increased income tax rates on savings and property income by 4 percentage points. This means basic-rate taxpayers will face 24 per cent tax on savings interest, higher-rate taxpayers will pay 44 per cent, and additional-rate payers will pay 49 per cent. HMRC estimated in October that by 2031-32, 6 million people would face a tax increase as a result of the higher levies on savings interest. The regulator also forecast that around 12 per cent of taxpayers would see an average annual tax rise of £113 in 2027-28 due to the increase in savings rates.
Higher earners face a challenging savings environment where frozen thresholds and rising interest rates combine to push more people into paying income tax on their savings, reducing their effective returns. Healey did reverse one previous proposal, scrapping plans to cut the annual cash Individual Savings Account allowance from £20,000 to £12,000 for under-65s from April 2027. Instead, the government plans to create a new Starter Isa for first-time investors. Those seeking to manage their tax liability can still utilise their full £20,000 annual Isa allowance, with interest earned in cash Isas remaining tax-free, or consider pension contributions and UK gilts as alternative tax-efficient savings vehicles.