'Stealth tax' warning as 2.6million Britons to be hit with £2,300 bill on savings this year and 'many won't realise'

New data from AJ Bell shows that tax bills on savings interest will affect 2.64 million people this tax year, with the average impacted saver facing a £2,300 charge.

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That marks a dramatic jump from just 647,000 people in 2021 - 22, a fourfold increase. Around one in 25 basic-rate taxpayers now face savings tax, up from fewer than one in 100 four years ago.

Higher-rate taxpayers are especially affected, with one in eight now liable, while 45 per cent of additional-rate taxpayers must also pay tax on their interest.

HMRC is expected to collect more than £6billion this year in total savings tax, compared with just £1.4billion in 2020-21.

The rise is being fuelled by frozen income tax thresholds and climbing interest rates on savings accounts.

Basic-rate taxpayers can earn up to £1,000 in interest before paying tax, higher-rate taxpayers get just £500, and additional-rate taxpayers receive no allowance at all. These thresholds have remained unchanged for more than nine years.

With average one-year fixed rates now at four per cent, and easy-access accounts at 2.68 per cent, many savers are breaching their allowance without realising it.

For example, a basic-rate taxpayer with £20,000 in a five per cent account would already face a tax bill.

Laura Suter, director of personal finance at AJ Bell, said: "What was once a tax affecting wealthier savers is now catching out everyday basic rate taxpayers. Many won't realise they've breached their allowance until HMRC comes knocking."

She emphasised that the combination of rising rates, frozen thresholds, and more people entering higher tax bands has fundamentally changed the savings landscape.

"Using tax wrappers like cash ISAs or investment ISAs is now more important than ever to protect your savings from the taxman," Suter advised.

She noted that with ISA rates now more competitive, a key barrier to sheltering savings has been removed, helping more people take action to avoid interest taxation.

AJ Bell obtained the figures via a Freedom of Information request. The forecasts show:

• Basic-rate savers paying tax will rise from 494,000 in 2022–23 to 1.15 million by 2025–26
• Higher-rate taxpayers affected will rise from 405,000 to 897,000
• Additional-rate taxpayers will increase from 301,000 to 548,000

Previous HMRC forecasts expected 2.1 million to pay savings tax in 2024-25. That figure has since been revised up to 2.52million, and to 2.64million by the following year.

Many taxpayers only find out they owe savings tax when HMRC adjusts their PAYE tax code or sends a P800 form. However, these systems are not watertight.

HMRC’s method of matching bank data with taxpayer information fails in around 20 per cent of cases, potentially losing hundreds of millions in unpaid tax.

Savings income from non-ISA accounts has soared to around £20billion, four times higher than five years ago.

The average effective tax rate is 31 per cent, though individuals pay tax at their marginal rate, 20, 40 or 45 per cent.