Freedom of Information: Nottingham Building Society reveals more households taxed on savings interest as income threshold freeze bites

More than 3.35 million people are projected to pay tax on the interest from their savings this year, according to new data obtained by Nottingham Building Society via a Freedom of Information request to His Majesty’s Revenue and Customs (HMRC)*.  

This is up from 3.06 million in 2020–21 and is projected to rise further as income thresholds remain frozen and interest rates remain elevated. 

The findings come as the Government considers reforms to the Cash ISA system, which could limit how much consumers are allowed to deposit each year. Nottingham Building Society has urged ministers to consider the wider tax landscape and cost-of-living pressures before making changes that could reduce the protection ISAs offer for savers. 

HMRC data shows that the number of individuals declaring taxable interest through self-assessment has, with the exception of a slight dip in 2021-22, risen steadily over the past five years, while official projections show a sharp increase in the total number of people paying income tax, from 34.5 million in 2022-23 to 39.1 million by 2025-26.**  

This includes a projected 30.8 million basic rate and savers rate taxpayers, up 6.8% over the same period, making up nearly four-fifths (79%) of all taxpayers. The number of higher rate taxpayers is expected to jump by nearly 39% to 7.08 million, while the number of additional rate taxpayers is set to more than double, up 115% to 1.23 million.  

These shifts are largely being driven by fiscal drag, as frozen thresholds pull more people into higher tax bands despite only modest nominal income growth. 

Commenting on the figures, Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “These figures highlight a growing and often hidden tax burden on ordinary savers. With the number of basic-rate taxpayers projected to rise by nearly 2 million in just three years, and the number of additional-rate taxpayers set to more than double, more people than ever are being pulled into paying tax on their hard-earned savings. 

“At a time when families are trying to build financial resilience amid frozen thresholds and rising living costs, the Government should be doing more to reward and protect savers.  

“We support the Government’s ambition to encourage investment and grow the economy, but limiting savers' access to savings vehicles like the Cash ISA is the wrong way to do it. Reform should focus on simplifying and strengthening it, not introducing new barriers or caps. 

“At Nottingham Building Society, we’re seeing this shift play out in real time. More than half of our fixed-rate ISA customers used the full £20,000 allowance last year, rising to 65% among our branch savers. These are not high-net-worth investors, but everyday people saving for a deposit, building a retirement fund, or creating a financial safety net. 

“Nottingham Building Society is calling for the Government’s upcoming consultation on Cash ISAs to consider the long-term impact on household finances and savings culture, and to ensure the system continues to provide meaningful protection for basic-rate savers, many of whom now find themselves unexpectedly dragged into paying tax on their interest income.”