The proportion of total savings interest tax paid by those aged over 65 is set to increase this tax year, according to an analysis by Paragon Bank
Pensioners are bracing for a tax hike of over 200% on the interest earned from their savings, as revealed by an analysis from Paragon Bank. Using data from HMRC, the bank found that savers aged 65 and above are expected to fork out £2.5bn in taxes on their savings interest this tax year.
This marks a jaw-dropping 215% increase compared to the amount paid in the 2022/23 tax year. Tax receipts from savers under 65 are also set to surge significantly, up 186% to £3.6bn during the same period.
However, the share of total savings interest tax paid by those aged over 65 will rise from 39% to 41%. “We’re witnessing a significant and rapid escalation in the tax burden on savers nearing or enjoying retirement. This could have a profound impact on their long-term financial wellbeing,” warned Andrew Wright, head of savings at Paragon Bank.
“Many mature savers are facing unprecedented tax charges on the interest earned from their savings, which can have a substantial impact on their long-term financial wellbeing.”
More and more people have been forced to pay tax on their saving income after interest rates soared but the government’s personal savings allowance remained static. The personal savings allowance allows basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, while higher-rate taxpayers get just £500.
Additional-rate taxpayers receive no allowance at all and pay tax on all interest earned outside of tax-free accounts like ISAs. “More mature savers typically have healthy savings balances and a preference for less volatile investments, so favour cash,” stated Wright.
“With the personal saving allowance and income tax thresholds frozen, that has resulted in better returns for savers aged 65 or above translating into a greater tax burden.”
stated Wright.” There are also other factors, such as more people opting to work for longer, thus potentially maintaining higher incomes.”
So, how can you dodge charges on your saving interest?
Wright suggested one effective method to alleviate some of this increased tax burden was by transferring funds into an ISA, where savings interest is protected from tax. ” stated Wright.”
ISAs remain an accessible and flexible option, enabling savers to safeguard more of their hard-earned money and maximise their nest eggs as they plan for, or live through, retirement,” he stated.”
Savers can deposit £20,000 into an ISA without paying any tax on it.
