1.1 million pensioners to pay tax on savings interest in 2025-26

More than 1.1 million people over State Pension age in the UK are expected to face income tax on interest earned from their savings in 2025-26, official figures show, as rising interest rates and frozen tax thresholds push more pensioners into taxable bands. Data obtained by investment platform AJ Bell from HM Revenue and Customs indicates 1,160,000 pensioners will have a savings tax liability in 2025-26, up from 493,000 in 2022-23 and 953,000 in 2023-24.

Those over State Pension age account for about 44 percent of the 2.64 million taxpayers projected to pay income tax on cash savings interest in the current financial year, the figures show. Financial experts point to two main drivers: higher bank and building society rates that have increased interest payments, and tax allowances and thresholds that have been frozen, reducing protection against tax on interest income.

Under the current rules, the personal savings allowance lets basic-rate taxpayers earn up to £1,000 of savings interest tax free, and higher-rate taxpayers up to £500. ISAs shelter interest from tax and the annual ISA allowance for 2025-26 remains £20,000, though government officials have discussed options that...