Budget 2025: tax on savings interest hiked by 2%

Sara White, Editor, Business & Accountancy Daily. Croner-i

Savers will be hit by a further tax blow with a 2% increase in the tax on savings interest.

As part of the chancellor’s Budget pick n mix, Rachel Reeves announced a hike in the tax rate on savings income by 2% across all bands from April 2027. This means savers will pay tax at 22% if they are basic rate taxpayers, and 42% for higher rate payers, rising to 47% for additional rate payers.

The current tax-free savings interest thresholds will be frozen, gradually losing their advantage, so the £1,000 basic rate and £500 higher rate limit will remain, while those in the additional rate tax band never had a tax-free allowance any way.

The government is already earning vast sums from tax on savings, and this is expected to grow further with an estimated £525m boost to the coffers in 2028-29 when HMRC first starts being paid the additional tax.

Christine Cairns, tax partner at PwC, said: ‘The government has raised tax across the board on investment income (interest, dividends and rents) by 2p in the pound. This will be felt sharply by those relying on investment income and it’s one of a long series of rises for those running a rental business.

‘With the changes to salary sacrifice also predicted to raise significant sums this is a painful budget for those whose income is heavily reliant on savings and investments.  Together, these measures are forecast to raise over £8bn by 2030-31.’