More than one million pensioners across the UK will pay tax on their cash savings this year, according to new figures from HM Revenue & Customs (HMRC).
The number of pensioners affected has more than doubled since 2022–23, as high interest rates and frozen tax thresholds push more savers above their tax-free limits.
HMRC data shows that 1.2 million people over the state pension age are expected to pay tax on their savings income in 2025–26. Pensioners now account for nearly half of the 2.6 million taxpayers facing savings tax.
Interest rates have risen sharply since the pandemic, while the personal savings allowance has remained unchanged for more than nine years. This has meant that more people are exceeding their tax-free interest limits.
Of the 1.2 million pensioners affected, more than 80,000 will pay the top 45 per cent rate of tax on their savings interest, compared with just 33,000 three years ago. Around 731,000 pensioners, two-thirds of all basic-rate savers who will pay tax, are expected to be charged this year.
HMRC is forecast to collect more than £6 billion in tax from savers in 2025–26, up from £1.4 billion in 2020–21. The average saver affected will face a tax bill of around £2,300.
Charlene Young, from investment platform AJ Bell, which obtained the figures through a Freedom of Information request, said:
“In retirement it is common to hold a little more cash. People often want to de-risk some of their investments and those with a good handle on their spending needs might look to build a cash flow ladder or funnel to match what they’ve got planned for the next few years.
Unfortunately, that appears to be leading to a large number of pensioners suffering a tax bill on their cash savings with increasing numbers being dragged into higher tax bands too.”
Anna Bowes, of financial planning firm The Private Office, added:
“The people who are the wealthiest and have probably got the most in cash savings – one because they’ve been saving their whole lives and two because they’ve reduced the risk of their portfolios so they have more in cash – then the freeze in the personal savings allowance will mean they are being dragged into paying more tax than ever.”
The personal savings allowance sets the amount of interest a person can earn before paying tax. It is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and none for additional-rate taxpayers earning more than £125,140 a year.
This means a basic-rate taxpayer with £20,000 in a savings account earning 5 per cent interest would now face a tax charge.
The figures have emerged amid speculation that the Chancellor, Rachel Reeves, could reduce the annual cash Isa allowance of £20,000 in the Budget scheduled for November 26.
A senior Labour source confirmed to The Telegraph that the proposal was being reviewed. An expected announcement earlier this year was delayed after concerns were raised by building societies, which said reducing Isa limits could increase mortgage rates.
Savings experts have warned that any cut to Isa limits would likely affect pensioners most, as they are more likely to keep their money in cash rather than investments.
In April, savers placed a record £14 billion into cash Isas amid speculation of potential changes — the highest monthly amount since records began in 1999.
A spokesperson for HM Treasury said:
“We are committed to helping our pensioners live with dignity and respect. Thanks to our commitment to the triple lock, millions will see their pension rise by up to £1,900 this parliament.
We will also protect the cash savings that are important for many pensioners who have put money away for a rainy day. But the Chancellor has been clear that she wants to get Britain investing again, so British companies can grow and British savers who choose to can get more in return.”
