Over 2.7 million people are expected to pay tax on their savings interest: Are you one of them?

As an increasing number of people are footing an income tax bill on their savings, now could be the time to consider an ISA.

The number of people paying tax on their savings interest has more than doubled in three years, rising from 1.27 million in 2022/23 to a staggering 2.79 million in 2025/26, HMRC figures released under a recent Freedom of Information request from Paragon Bank revealed.

This means that many savers could be facing an unnecessary tax bill on their savings interest this year if they’re not taking advantage of the tax-free benefits of ISAs.

 And with income tax thresholds frozen, and higher wages, more people could see themselves in a higher tax bracket – also known as fiscal drag.

This, coupled with the competitive rates continuing to be offered across the savings market, means people are making larger sums of interest on their savings – resulting in them being thrust into a part of the tax system originally intended for wealthier consumers, Andrew Wright, Paragon Bank Head of Savings, explained.

“The tax-free status of ISAs means savers keep every pound of interest they earn, providing certainty and protection at a time when allowances are frozen and interest rates remain competitive,” Wright continued.

How much could you be facing in tax on your savings interest?

Savers who earn more than their PSA and aren’t taking advantage of cash ISAs could find themselves paying hundreds of pounds in tax.

Worryingly, basic-rate taxpayers who breach their PSA are estimated to pay an average of £641 on their savings interest this tax-year, soaring to £2,030 for higher-rate taxpayers. Meanwhile, additional-rate taxpayers could pay a sizeable £6,990 on average on their savings interest.

Swapping to an ISA could be an effective way to shield against these kinds of bills, as they allow savers to earn interest completely free of income tax. And there are many ISAs available to suit different needs, such as easy access ISAs, fixed ISAs and notice ISAs.

With the current tax-year drawing to a close on 5 April 2026, now is the time to consider an ISA and make the most of what’s left of your annual ISA allowance.

What’s happening to the cash ISA allowance?

As it stands, savers can place up to £20,000 into cash ISAs – however, this is set to change from April 2027. After this, the cash ISA allowance will be slashed to £12,000 for under-65s. For those 65 and over, the limit will stay at £20,000.