According to data obtained from HM Revenue & Customs through a Freedom of Information request submitted by Paragon, the total tax liability on savings income among people aged 65 and over is forecast to reach £3.34 billion in 2026/27. That compares with £795 million four years earlier.
The figures come as frozen tax thresholds and savings allowances leave more people exposed to tax when their income or interest rises. Savers are not taxed on the money deposited into an account, but interest earned on those savings can become taxable depending on their total income, tax band and available allowances.
People aged 65 and over are expected to account for 47% of all taxpayers with an Income Tax liability on savings income in 2026/27. In 2022/23, the same age group represented 42% of those taxpayers.
How Savings Interest Becomes Taxable
The amount of savings interest that can be received without paying tax depends on several allowances. The Personal Allowance permits an individual to receive up to £12,570 a year from income sources including work, pensions and savings interest before Income Tax is due.
Those earning above that level may still benefit from the Personal Savings Allowance. Basic-rate taxpayers can receive up to £1,000 of savings interest tax-free each year, while higher-rate taxpayers have an allowance of £500. Additional-rate taxpayers receive no Personal Savings Allowance.
There is also a Starting Rate for Savings, which can provide up to £5,000 of additional tax-free savings interest for people with relatively low non-savings income. The allowance is reduced by £1 for every £1 of other income above the £12,570 Personal Allowance and disappears once that income reaches £17,570.
According to comments previously made by personal finance expert Martin Lewis, a basic-rate taxpayer earning around 4.5% interest would need slightly more than £22,000 in savings before generating £1,000 of annual interest. A higher-rate taxpayer, whose allowance is £500, could reach the limit with roughly £11,000 saved at the same rate.
Older Savers Retain the Full Cash ISA Allowance
From the 2027/28 tax year, people aged 65 and over will retain the full £20,000 cash ISA allowance. Savers aged 64 and under will be able to place up to £12,000 in cash within an ISA. Andrew Wright, Head of Savings at Paragon Bank, said millions of older savers were being “pulled into the tax net”, with four times as many people aged 65 and over facing a tax bill on their interest compared with four years earlier.
According to the figures reported from Paragon’s HMRC request, approximately 2.8 million people paid tax on savings during the 2025/26 tax year, compared with 1.3 million in the preceding year. HMRC has said that most people do not pay tax on their savings interest, while encouraging savers withdrawing money early to be aware of the rules surrounding interest and early-withdrawal charges.
