New data reveals that rising interest rates and frozen tax thresholds will force over one million more taxpayers to pay taxes this year.

Over 2.7 million individuals will pay tax on cash interest in the 2023/24 tax year, up by a million in a single year as more savers breach the personal savings allowance.

This total includes almost 1.4 million basic-rate taxpayers, quadrupling in four years.

HMRC figures, obtained by investment firm AJ Bell, predict £6.6 billion in tax on earned savings interest.

AJ Bell said that 1 in 20 basic-rate payers will pay tax on cash interest this tax year, rising to 1 in 6 higher-rate payers and around half of additional-rate payers.

Tax on savings income is paid either through self-assessment or deducted from income through a tax code adjustment.

Many taxpayers will be unaware that they owe the tax until HMRC sends them a letter telling them to change their tax code so it can deduct the money from their payslip, AJ Bell said.

The firm urged Chancellor Jeremy Hunt to end the freeze on the personal savings allowance, which has remained unchanged since 2016 despite wage inflation and surging interest rates yielding higher gains.

The personal savings allowance allows basic-rate taxpayers to earn £1,000 in interest from their savings without paying tax. The allowance is £500 for higher-rate taxpayers and non-applicable to additional-rate payers.

In November 2022, the Government lowered the additional tax band from £150,000 to £125,140, wiping away the personal savings allowance for thousands of higher earners.

Laura Suter, head of finance at AJ Bell, said: "The figures highlight just how many taxpayers are facing a tax bill for their savings interest this year - a huge leap when compared to last year.

"The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years."

"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.

"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".

Former pensions minister Baroness Altmann called on Hunt in June to raise the tax thresholds on savings income.

"It's about the principle of rewarding rather than punishing savers who have had such a rough ride for so long," she said.

In March 2021, then Chancellor Rishi Sunak froze tax thresholds for income, capital gains and inheritance tax as well as the pensions lifetime allowance as part of his approach to "fixing the public finances".

Hunt extended a number of tax threshold freezes in November 2022 to combat inflation and recently admitted a package of pre-election tax cuts this autumn was unlikely.

"We will not countenance tax cuts if they make the battle against inflation harder," he said. "If we were to pump billions of pounds of additional demand into the economy when inflation is already too high, that would mean fiscal policy working against monetary policy."

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