HMRC warning as 4.5 million Britons to be hit by savings tax - all you need to know

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More than two million basic-rate taxpayers are expected to pay tax on their savings interest

Millions of savers across the country could soon be hit with an unexpected tax bill on their hard-earned interest.

The scale of the problem is far larger than most people realise.

HMRC figures obtained through a Freedom of Information request reveal that 4.51 million people are expected to owe income tax on their savings interest in 2026/27.

That marks a staggering 269 per cent surge compared with just 1.22 million in 2022/23.

The data, analysed by savings app Spring, shows that 3.29 million additional savers have been pulled into the tax net in the space of four years.

A frozen Personal Savings Allowance combined with higher interest rates has created a perfect storm for ordinary savers, many of whom may not even be aware they owe anything.

Basic-rate taxpayers face the sharpest rise of any band. Their numbers are forecast to jump 332 per cent, from 475,000 to 2.05 million, with an average tax bill of £804.

Higher-rate taxpayers are not far behind. The number owing tax on savings interest is set to climb 275 per cent, rising from 405,000 to 1.52 million. Those in this bracket face an average charge of £1,684.

For additional-rate taxpayers, the figure is projected to more than double, growing from 301,000 to 682,000. Their average bill is significantly steeper at £5,821.

The sheer pace of the increase among basic-rate earners is particularly striking. Many in this group are unlikely to have budgeted for a tax liability on their savings.

Despite making up just 15 per cent of those facing a tax charge on savings income in 2026/27, additional-rate taxpayers are forecast to bear nearly half the total burden.

Their collective contribution is expected to reach £3.97 billion, accounting for 49 per cent of the overall bill.

Derek Sprawling, Head of Money at Spring, said: "Higher rates have helped savers generate better returns on their savings, but they have also pushed millions beyond their tax-free Personal Savings Allowance.

"With the allowance frozen, more people are being dragged deeper into the tax net, including more than two million basic-rate taxpayers."

The frozen threshold means that even modest savings pots are now generating enough interest to trigger a tax liability, catching out people who have never had to worry about it before.

Sprawling also pointed to practical ways savers can reduce their exposure.

He suggested that tax-free options such as ISAs remain one of the most effective tools, while ensuring that idle cash in current accounts is put to work earning interest can also help offset the additional burden.

Savers can currently shelter up to £20,000 a year in a cash ISA, where interest earned is entirely free from tax.

Those aged 65 and over also retain their allowance for future tax years.

Making full use of this annual limit could prove crucial for anyone at risk of breaching their Personal Savings Allowance.

For the growing number of basic-rate earners now caught in the tax net, even small steps to reorganise their savings could make a meaningful difference.