Around 1.7 million more people are expected to pay income tax on their personal savings than initially thought, revised figures from HMRC show.
In March, HMRC told The Telegraph under freedom of information rules that 2.7 million savers were expected to face tax bills on their savings over the next 12 months.
However, according to revised figures, a record 4.5 million people are now set to be caught in the tax net this year – significantly higher than HMRC’s initial estimates released just five months ago.
The rise is a symptom of continued frozen allowance thresholds and prolonged higher interest rates, which together have dragged an unprecedented number of people into paying tax on their savings.
It is understood that HMRC now uses revised methodologies for its forecasts, which are based on the most up-to-date income data. Previous projections also excluded pensioners relying solely on the state pension as their main source of income.
Sarah Coles, of investment platform AJ Bell, said: “Higher interest rates will automatically boost what people are making on their savings, and when they’re held outside a cash Isa, it means running the risk of a bigger tax bill.
“At the same time, inflation over this period was significant, so those who were in work were likely to have had pay rises to help them keep pace, and those in retirement were likely to have had at least some of their income linked to inflation.
“It raises the risk that their incomes pushed them over frozen income tax thresholds, where their personal savings allowance halved or disappeared overnight, and the level of tax they paid on the excess shot up too.”
If a basic-rate taxpayer earns more than £1,000 in savings interest in a tax year, they must pay 20pc tax on interest earned above this threshold. This allowance reduces to £500 for higher-rate taxpayers, who pay 40pc tax, while additional-rate taxpayers have no tax-free savings allowance and must pay 45pc tax on all savings interest earned outside an Isa.
Personal tax thresholds are set to remain frozen until April 2031, dragging more savers into scope.
Overall, HMRC estimates that it will bring in £8.4bn in savings interest tax in 2026-27. The amount collected is expected to rise significantly again next year, when a series of tax changes come into effect.
From April, the cash Isa allowance for savers aged under 65 will be cut from £20,000 a year to £12,000.
Meanwhile, cash held in investment Isas will be subject to a 22pc flat charge on any interest earned, and the rates of tax payable on savings held outside the Isa wrapper will increase by two percentage points across the board to 22pc, 42pc and 47pc for each tax band.
Andrew Wright, at Paragon Bank, said: “Anyone with money outside an Isa should check where their savings are held and make full use of the tax-free allowance available to them.”
The Treasury was approached for comment.
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