The allowance has been frozen since it was introduced in 2016 and is not expected to be lifted in the Budget.
HMRC set to punish state pensioners who have ‘average savings’ from tomorrow
A warning has been issued for UK households with “average” savings who face being punished by HMRC after a move in the Autumn Budget from the Labour Party government tomorrow.
The HMRC Personal Savings Allowance (PSA) allows most people to earn up to £1,000 in interest without paying tax on it. The allowance has been frozen since it was introduced in 2016 and is not expected to be lifted in the Budget.
Chancellor Rachel Reeves will deliver her Autumn Budget on Wednesday, November 26, to much speculation and fanfare. Rumours are already swirling just 24 hours out from Ms Reeves delivering her Budget in the Commons.
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And the higher inflation rates will mean thousands more savers will be dragged into paying tax on the interest they earn from savings. Savings comparison site Raisin UK found over-55s have an average savings balance of £20,000.
That is almost double that of the next highest group. Founder Kevin Mountford said: “Just as interest rates have finally started to reward savers, many are finding that their savings income is being taxed – not because they’re wealthy, but because the threshold hasn’t moved in years.”
Charlotte Ransom, of investment manager Netwealth, said: “The Chancellor is not the only one whose fiscal headroom has disappeared.
“Freezing these allowances is pulling hundreds of thousands of pensioners into the tax net, creating unexpected bills on modest savings and pensions.
“Many elderly people will also be hit with the major administrative burden of a complex tax return they have no idea how to fill out, at a point in life where there is little or no time to adapt.”
Rachel Springall, of comparison website Moneyfactscompare.co.uk, said pensioners might not know where to turn.
She said: “Those who don’t seek advice could risk their hard-earned cash and severely damage their retirement provisions due to bad investment decisions.
“This is not helped by the fact that pensions will soon fall under inheritance tax rules, so more retirees could feel inclined to spend more of their pots earlier, putting them at risk of running out of cash.”