Investment and SIPP platform AJ Bell has called on the Chancellor to double the personal savings allowance in his Autumn Budget.
In the tax year ended this April, the number of savers snared by the tax penalty rocketed 82% to 1.77m, according to data shared by HMRC with the platform under an FOI request.
Taxpayers owed HMRC over £3.4bn in tax on money earned through cash accounts last year.
This compares to 927,000 taxpayers who paid £1.2bn in tax on money earned through cash accounts in the 2021/22 tax year.
The average bill incurred by someone stung with tax on cash savings amounted to almost £2,000 for the 2022/23 tax year.
The personal savings allowance currently stands at £1,000 and £500 for basic rate and higher rate taxpayers respectively.
Additional rate taxpayers get no tax break, meaning those with income over £125,140 now pay 45% tax on any cash interest outside an ISA.
With cash interest rates now above 5% on some accounts individuals with as little as £10,000-£20,000 in cash can expect to be impacted.
Laura Suter, head of personal finance at AJ Bell, said: “Rising rates and a frozen personal savings allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day. With cash interest rates now above 5% in some cases individuals with between £10,000 and £20,000 in cash can expect to pay tax on their savings interest. To add insult to injury, because inflation is so high, they aren’t even making a real return on their money – yet they are still being taxed.
“Until a brown letter lands on their doormat some people won’t even realise they owe tax on cash interest. Those filling out a self-assessment tax return will declare any savings interest, and subsequent tax due. But, for those taxed under PAYE, HMRC will calculate any tax due based on information sent to them by banks and building societies. It means many taxpayers will find there is a deduction made from their payslip each month, often before they’ve even realised they owe any money to the taxman.”
