Older Brits are “particularly at risk” of being taxed, as many of them will have saved up “large cash reserves” before retiring.
Pensioners could have their savings interest taxed, experts have warned. (Image: Getty)
State pensioners have been warned they are “particularly at risk” of a staggering £6billion stealth tax on savings interest by HMRC. Frozen tax allowances have been breached by rising savings interests – effectively how much your bank will pay you for choosing them – which caused fiscal drag. One in 15 taxpayers could be taxed on their savings this financial year, new data from investment platform AJ Bell revealed.
Its Freedom of Information request found that UK savers earn roughly £20billion a year collectively from non-ISA cash accounts, creating an estimated £6billion national tax liability. Laura Suter, director of personal finance, said: “Even though the Bank of England cut interest rates this week, millions of savers will still be hit with a tax bill for their savings interest.”
HMRC could launch a £6 billion raid later this year. (Image: Getty)
Basic-rate taxpayers need £19,000 in savings to exceed their £1,000 annual tax-free threshold, while high-rate taxpayers require just £9,800 before surpassing their £500 threshold.
Additional-rate earners pay 45% tax on all interest earned, with no personal savings allowance.
Suter added that older Brits are “particularly at risk” of being taxed, as many of them will have saved up “large cash reserves” before retiring.
She explained: “Older savers who are nearing retirement are particularly at risk of an unwanted tax bill for their cash savings.
“Many will have built up large cash reserves to spend in retirement – not wanting to take risk with the money by investing it so close to their retirement date.
“Once in retirement many retirees will also have decent cash pots to live off, alongside their other pension income. If these cash piles are outside an ISA wrapper, they could face chunky tax bills for the money.
“On top of that, frozen tax bands mean many more pensioners will be pushed into paying income tax. The rising state pension is taking up a decent chunk of retirees’ personal allowance now, meaning that extra pension income could easily push them into basic-rate tax.
“This means that savings income exceeding £1,000 a year would be taxed at 20%. Those who are earning lots of interest on their savings or who are already near the next tax band could find that the savings interest itself tips them into the next tax bracket.”
