The rate of tax paid on savings interest is rising from April 2027
The Autumn Budget announcement that the Cash ISA tax-free limit will be slashed from £20,000 to 12,000 was a blow for savers that rely on the accounts, but another announcement could also have a detrimental impact on UK household savings.
Chancellor Rachel Reeves outlined the Labour Party government’s second Budget on Wednesday (November 26), confirming the change to Cash ISAs will come into effect in April, 2027.
However, the rate of tax paid on savings interest is rising from April 2027.
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Basic-rate taxpayers can earn £1,000 in savings interest every year before they start to pay tax, known as your personal savings allowance.
The tax rate is 20% on savings interest above this amount – but this will increase to 22%.
If you were to save your money in the current top rate easy-access savings account you would need to have more than £22,000 put away for one year.
For higer-rate taxpayers who pay 40% tax when they earn more than £500 in savings interest a year, the limit is lower.
This will go up to 42% from April 2027, while additional rate taxpayers have to pay 45% tax on all their savings interest, rising to 47%.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “There’s a risk more people will be saving outside a tax-efficient environment and be exposed to this new tax rate.
“The personal savings allowance will still protect the first £1,000 of savings interest for basic rate taxpayers and £500 of interest for higher rate taxpayer, but after that people will face a hike in their tax bill.
“It’s going to be more important than ever to take advantage of cash ISAs, where all your savings are protected from tax.
“The change to the cash ISA allowance will not happen overnight so there is still an opportunity to take advantage of your allowance this year.”
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