Laura Suter flags £2,300 average Hmrc Savings Tax Bills

Thousands of households are set to receive hmrc savings tax bills after rising interest rates pushed more savers beyond their tax-free allowances. Financial analysts say the average person is now paying £2,300 in tax on savings, with Laura Suter warning that the cost can be high for people who expected their cash accounts to stay outside the tax net.

Figures disclosed to AJ Bell show savers are handing over an average of 31 per cent of their interest earnings in tax once allowances are taken into account. British savers are expected to generate around £20 billion in interest from non-ISA accounts during the current financial year, which leaves a large share of that income exposed to HMRC once the personal allowance is used up.

AJ Bell and Laura Suter

Suter, an analyst at AJ Bell, said: “Falling foul of the savings tax trap can be costly.” She also said: “Figures disclosed to AJ Bell show the average person is paying £2,300 in tax on their savings, with an average effective rate of tax of about 31 per cent.”

She tied the rise in tax bills to higher interest rates and rising wages. In her view, “With interest rates rising sharply, more savers are being dragged into the tax net. What was once a tax affecting wealthier savers is now catching out everyday basic-rate taxpayers.”

Personal Savings Allowance

The Personal Savings Allowance has stayed frozen since it was introduced more than eight years ago. Basic-rate taxpayers can earn up to £1,000 in annual interest outside an ISA before paying tax on their savings, while higher-rate taxpayers earning more than £50,270 see their allowance cut to £500 a year.

Suter said: “Labour has frozen tax thresholds and left the Personal Savings Allowance untouched since it was introduced more than eight years ago.” For savers with cash building up outside ISAs, the immediate step is to check whether rising interest has pushed them above the allowance linked to their tax band.