UK pensioners face surge in tax on savings interest

Research based on HM Revenue and Customs (HMRC) data reveals a significant increase in the number of UK citizens aged 65 and older facing income tax on their savings interest. Data obtained via a Freedom of Information request by Paragon Bank indicates that 2.1 million retirees are forecast to owe tax on savings income during the 2026/27 tax year, a fourfold increase from the 517,000 recorded in 2022/23.

The total tax bill for this demographic is projected to rise from £795 million four years ago to £3.34 billion in 2026/27. Analysts attribute this surge to elevated interest rates and a prolonged freeze on tax thresholds, which pulls more individuals into the tax system as nominal income increases.

To mitigate these costs, savers aged 65 or older will retain access to the full £20,000 cash ISA allowance starting in the 2027/28 tax year, allowing them to shelter interest from taxation.