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More than 2.1 million people aged 65 and above will be paying tax on their savings taxable income in 2026/27 — more than quadruple the number four years ago. A fresh HMRC savings tax warning has been issued, indicating that millions of older people and pensioners may see their tax bills increase as more people fall above the interest-free limit with rising interest rates. Here’s what you should know now if you’re over 65 and earning interest on your savings.
Quick Facts: HMRC Savings Tax & Over-65 Workers
| Fact | Detail |
| People aged 65+ paying savings tax (2026/27) | 2.1 million |
| People aged 65+ paying savings tax (2022/23) | 517,000 |
| Increase | The rate of growth is 400% over 4 years. |
| Total tax liability (65+) in 2026/27 | £3.34 billion |
| Total tax liability (65+) in 2022/23 | £795 million |
| Share of all savings taxpayers aged 65+ | 47% in 2026/27 (up from 42%) |
| Cash ISA allowance for 65+ from 2027/28 | £20,000 |
| The cash ISA allowance for those under 65 will be raised from 2027/28. | £12,000 |
Why Are So Many Older Workers Suddenly Facing a Savings Tax Bill?
It’s about the increase in interest rates and the stagnation of the Personal Savings Allowance. The Personal Savings Allowance (PSA), or the amount of interest you can receive without paying any tax on it, has remained at the same level for many years:
The basic-rate tax band (18%): £1,000 interest earned on savings with no tax deducted, up to this limit
Higher rate taxpayers will receive £500 of their savings interest free of tax per year.
At the additional rate: No tax-free savings interest at all
With low interest rates, these limits were not often exceeded. However, with the rate increase, even small interest accounts began to earn interest that surpassed the PSA, without any modifications in the rules, bringing millions of older savers into the tax bracket.
This is particularly true for over-age 65 workers who may receive a pension on top of their earnings. They may be pushed into higher tax brackets by their total income (including their savings interest), thus wiping out their PSA.
How the HMRC Savings Tax Rules Work for Over-65s
It is vital that those nearing retirement age know the tax rules and regulations HMRC have:
- Savings interest is considered to be income. HMRC includes interest received from bank accounts, fixed rate bonds and the like in your taxable income.
- The amount of your allowance will be based on your tax band. However, if you are pushed into the top rate band (income over £50,270), the tax-free savings allowance will be reduced from £1,000 to only £500.
- HMRC will automatically collect tax on bank interest. Most interest is paid directly to HMRC from banks and building societies and may be paid through adjustments to your PAYE code or by Self Assessment.
Comparison: Savings Tax Impact Before and After the Rate Rise Era
| scenario | 2022/23 | 2026/27 |
| People over 65 are liable to pay tax on savings, which is not the case for the rest of the population. | 517,000 | 2.1 million |
| The total tax bill (65+ group) | £795 million | £3.34 billion |
| % of all savings taxpayers | 42% | 47% |
| Average tax per impacted person (approx.) | ~£1,537 | ~£1,590 |
The facts are stark: the tax on older people’s savings has increased sharply, and with interest rates remaining high compared with before 2022, there is no clear indication that this is going to change unless the PSA is raised — which the government has not said it will do.
What Can Over-65 Workers Do to Reduce Their Savings Tax Bill?
It is perfectly possible, and HMRC accepted, to minimise your UK savings tax exposure:
1. Make sure you make the most of your ISA allowance.
Savings interest in a cash ISA is free from income tax and therefore non-taxable — it is not counted towards your PSA and will not be included in your taxable income. From 2027/28, anyone aged 65 and older will get a full £20,000 cash ISA allowance, which will be reduced to £12,000 for those under 65. This makes ISAs an ideal product for older savers.
2. Joint Savings with a Partner (Spouse or Civil Partner)
Consider saving in your partner’s name (or jointly), if they are a basic rate taxpayer or if they don’t use all of their PSA, to help lower the household tax bill.
3. Consider Premium Bonds
The prizes awarded by National Savings & Investments (NS&I) Premium Bonds are income tax-free and have no impact on your PSA.
4. Check your income sources
If you are a working pensioner who receives a salary as well as a pension, see if your tax band will be different if you change the order of your income sources — and that will change your PSA.
6. Submit a Self Assessment Return
If you have tax to pay on savings interest, you may have to report it under Self Assessment. If not, then you may be subject to penalties under HMRC tax law.
FAQs: HMRC savings tax for over-65 workers
Is there a higher savings allowance tax for over-65s than for younger people?
No. There is no Personal Savings Allowance depending on age; it only depends on the tax band. But since 2027/28, the cash ISA allowance for those over 65 will be a significant alternative way to earn tax-free savings interest.
If I have unpaid savings income tax, will HMRC get in touch with me?
HMRC has the power to make automatic calculations if they are notified by your bank. If you have substantial savings, then you may have to sign up for Self Assessment.
What is regarded as taxable savings income?
Interest from a bank account, fixed interest bonds, building societies etc. are all classified as taxable savings income. Dividends and ISA returns are not.
Is there any difference in the savings tax rules for pensioners?
Not as far as the PSA is concerned. But UK pensioner tax situations are more complicated as it is the total band of income (pension income, state pension and savings interest) that determines your tax band and hence your allowance.
Am I entitled to a refund on savings interest paid in excess of what I should have paid?
Yes. Non-taxpayers and those who earn less than the Personal Allowance (which is £12,570 for 2026/27) can reclaim any tax deducted from their income by filling out an R40.
The Bottom Line
HMRC’s challenge to older workers through the scale of the savings tax is rapidly increasing. The number of people over 65 who will have to pay a savings income tax bill is projected to rise to 2.1 million in 2026/27, up fourfold in 4 years. It’s for millions of normal savers who did everything they could right: worked hard and saved, and saved, and saved for retirement.
What is most important for anyone with an existing savings pot to do is to make sure they use up the allowance each year. The most effective strategy for safeguarding retirement savings from an increasingly aggressive tax net for those who will be impacted by UK tax changes 2026 and beyond is to maximise the tax-free wrappers and avoid any complicated or risky options.
Ensure you are kept up to date, check your savings structure on a yearly basis and don’t hesitate to seek advice from a competent tax adviser who knows and understands the HMRC savings rules for older individuals.
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