Over 2million retirees to be hit by ‘stealth tax raid’ on savings as bills quadruple to £3.3bn – what it means for you

MORE than two million over 65s could be hit with a nasty tax bill on their savings this year, worrying new figures reveal. Around 2.1million retirees are forecast to be hit with a tax bill for the interest they have earned on their savings, according to a freedom of information request submitted to HMRC by Paragon Bank. This is more than four times the 517,000 people affected in 2022/23. You may have to pay tax on the interest you earn on your savings if it exceeds your tax-free allowance. Sign up for the Money newsletter Thank you! Basic-rate taxpayers can earn up to £1,000 a year in interest without needing to pay tax. But if you’re a higher rate taxpayer then your allowance falls to £500, while if you’re an additional rate-taxpayer then your allowance disappears entirely. Get FREE tax guidance about inheritance, property and capital gains worth £250 * If you click on this link we will earn affiliate revenue Are you sick of handing over your hard-earned cash to the taxman? You could slash your tax bill legitimately with the right planning, from inheritance tax on your home to savings and pensions. Award-winning financial advice firm Kellands Chartered Financial Planners are offering Sun Money readers a free one-hour consultation with their experts worth £250. Claim your free session today Kellands (Hale) Limited is authorised and regulated by the Financial Conduct Authority. FCA Firm Reference No: 193498 In total, over 65s are expected to pay £3.34billion in tax on their savings interest this year, up from £795million four years earlier. Older savers now make up almost half of all people who pay tax on their savings and this figure continues to grow. Just four years ago they accounted for 42%. Andrew Wright, head of savings at Paragon Bank, said: “Millions of older savers are being pulled into the tax net, putting more of their retirement savings at risk, with four times as many savers aged 65 plus incurring a tax bill on their interest than just four years ago.” Most read in Money One way to avoid being hit is to make use of your Isa allowance. Every person can save up to £20,000 a year into an Isa, or split it among several different accounts including a Cash Isa, Stocks and Shares Isa or Lifetime Isa. Any interest you earn on the money kept in your Isa is tax-free. But from the 2027/28 tax year only savers aged 65 or above will be able to pay the full £20,000 allowance into a Cash Isa. Younger savers will only be able to save £12,000 into this account. All savers will still be able to pay up to £20,000 into a Stocks and Shares Isa each year. Another option is to put some of your savings into Premium Bonds. You can put up to £50,000 into premium bonds and any prizes you win are tax-free. But you are not guaranteed to win a set number of prizes each year, so your returns can vary. How to protect your nest egg from the taxman Olivia Tomlinson explains how you can open an Isa and shelter your interest from the taxman. Start by thinking about which type of Isa you want and what you are saving or investing for. Sarah Coles, head of personal finance at AJ Bell, said: “It starts with the kind of Isa you want – whether you’re saving or investing, and whether it’s for a property, retirement or a child.” Once you have selected the type of account, you will need to choose a provider. Sarah said: “For a Cash Isa, this will be about finding the best possible rate on the kind of account you need – whether that’s an easy-access account or one that’s fixed for a period. “You also need to consider whether you’re likely to want to withdraw and top up the account, in which case you may want a flexible Isa. “If it’s not flexible, every top-up will use more of your annual allowance.” Websites including Moneyfactscompare.co.uk and MoneySavingExpert.com can help you compare savings accounts, although they may not cover every deal on the market. For a Stocks and Shares Isa, compare providers based on their charges, investment choices and the support they offer. Sarah said: “Then see whether they let you invest in the things you want, what the charges are like, and the support that’s on offer. “There’s a full spectrum and a range of costs, so it’s about finding what works for you.” Once you have chosen an account, you can usually apply through the provider’s website or app. Sarah said: “Once you know what you want, you can visit the company website and click ‘open an Isa’. “If it’s a brand new Isa you’re going to fund with cash, you need your National Insurance number, your bank details and your debit card details. “If you are transferring, you also need details of the Isa you have elsewhere.” You may also need to provide proof of your identity and address. Comment now