Savers to pay £10.4bn in tax in 2024/25

Savers are set to pay £10.4bn in savings interest in the current financial year, new figures from HM Revenue and Customs (HMRC) have shown.

This is a rise of over £9bn compared to the figure reported back in the 2020/21 financial year.

The income tax liability statistics released by HMRC also revealed that the cut to the personal savings allowance will lead to an extra 2.1 million people entering a higher tax band, while a further 5.7 million will be pushing into paying a higher rate of tax.

Head of strategy at Coventry Building Society, Jeremy Cox, said: "Millions of people are already paying tax on their hard-earned savings, with more and more quietly slipping into the stealth savings tax trap every year.

"A double whammy of fiscal drag and higher interest rates has led to a surge in the number of people paying tax on savings income and the amounts they’re having to cough up.

"Savers are typically earning higher interest rates on their savings pots than they were a few years ago. And, while tax-free cash ISAs have surged in popularity, those with money in non-ISA savings are using up their personal savings allowances more quickly."

Furthermore, the number of people above the state pension age paying income tax will rise by 660,000 to 8.5 million in the current financial year.

The increase is part of a broader trend seen since the state pension age rose to 66 in 2020/21, when 6.5 million pensioners were paying tax.

When considering all those aged 65 and over, HMRC’s latest data showed that there are now just under nine million taxpayers in this age bracket, compared to 4.9 million in 2010/11 on the same definition.

The Conservative triple lock pension policy aims to prevent pensioners from ever paying tax on their state pension by increasing their personal allowance every year.

Despite this, recent analysis by LCP has found that just under 2.5 million pensioners would still pay tax on their state pension even after the implementation of a ‘triple lock plus’ policy.

Head of policy at Broadstone, David Brooks, added: "We would expect a growing number of pensioners to be liable for income tax as the country’s demographic changes due to our ageing population and pace of increases to the state pension. But it is a reminder that with the income tax thresholds frozen at £12,500 until 2028 since 2021, an ever-growing proportion of pensioners will be captured by the tax given the increases to the state pension.

"For most people, the state pension will be below the personal allowance, and it is only extra private savings that exceed this limit. It is wholly appropriate that pensioners on higher incomes are subject to higher levels are tax – it is confusing why pensioners paying tax is necessarily seen as a bad thing."

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