If you’ve got money sitting in a savings account, the next few years are about to feel different. The UK government has confirmed a tax crackdown on savings accounts, giving HMRC more power, more data, and a green light to collect more tax from everyday savers.
This isn’t a headline-grabbing theory — it’s already in motion. Banks are reporting more information to HMRC, interest rates are still far higher than before 2022, and new rules coming between 2025 and 2027 will push thousands of people into paying savings tax for the first time.
Many savers don’t realise they’re already close to (or over) their Personal Savings Allowance. Others assume the old ISA rules still apply. And some genuinely believe HMRC “won’t see everything.”
They will. And quickly.
This guide breaks down what’s changing, who’ll be hit the hardest, how much tax you may owe, and — most importantly — the legal steps you can take to protect more of your interest.
Everything here is updated for 2025, written in plain English, and focused on what real savers need to do right now.
What Is the “Tax Crackdown on Savings Accounts”?
The “crackdown” refers to a series of government decisions and HMRC operational changes that combine to:
- Reduce how much savings interest can be earned tax-free
- Increase HMRC’s ability to identify, match, and tax interest across multiple accounts
- Close ISA loopholes and restrict who receives the full allowance
- Bring more savers into the tax net as interest rates stay higher than pre-pandemic levels
In simple terms:
More people will pay tax on their savings, and HMRC will spot it faster than before.
This is not just aimed at wealthy individuals. Everyday savers — especially those with £20,000 to £150,000 in cash — are the new focus.
What’s Changing in 2025–2027? (Old vs New Rules)
Here’s the point-by-point breakdown of the new system and the changes announced or confirmed by the Treasury.
1. Higher Tax on Savings Interest
Savings interest has always been taxable, but millions avoided it thanks to the Personal Savings Allowance (PSA).
However, with interest rates at 4%–6%, people hit their PSA far faster.
PSA thresholds stay the same:
- Basic-rate taxpayers: £1,000
- Higher-rate taxpayers: £500
- Additional-rate taxpayers: £0
But the Chancellor confirmed HMRC will tighten enforcement, meaning fewer mistakes will be overlooked.
If you earn £50,000 in savings at 5% interest, that’s £2,500 a year. Even as a basic-rate taxpayer, that means £1,500 of taxable interest.
2. Cash ISA Allowance Cut for Under-65s (2027)
One of the biggest changes in the crackdown is the expected reduction of the Cash ISA allowance, from £20,000 down to £12,000 annually for people under 65.
Why?
The Treasury argues ISAs were being used as “excess sheltering” during high-interest years.
Who keeps the full £20,000 allowance?
- People aged 65+
- Disabled adults (qualifying criteria apply)
- Adult Junior ISA holders transitioning at age 18
Under-65s will see reduced tax-free shelter space, driving more interest into taxable territory.
3. Expanded Data Sharing Between Banks & HMRC
HMRC already receives annual interest reports from UK banks.
But the 2025 upgrade includes:
- Monthly reporting rather than yearly
- Automatic interest matching across all banks
- Account-level data instead of summaries
- Faster triggers for tax letters and compliance checks
Someone with six savings accounts will no longer “slip through cracks” — HMRC sees the full picture.
4. Personal Savings Allowance (PSA) Pressure
The PSA hasn’t increased since 2016, but interest rates have.
This means:
- A saver with £20,000 in a 5% account earns £1,000 interest — instantly hitting their PSA.
- Anything above that becomes taxable.
More savers will now exceed PSA without realising it.
Who Will Be Most Affected? (2025–2027 Impact)
The crackdown doesn’t treat everyone equally. Some groups will feel it more than others.
Everyday Savers with £20k–£150k in Cash
People who have worked hard, saved consistently, and kept most of their money in cash will now face:
- Lower ISA limits
- Higher taxable interest
- More HMRC monitoring
This group makes up the majority of new taxpayers.
Higher-Rate Taxpayers
If you earn more than £50,270, your PSA is only £500.
Even £10,000 saved at 5% interest creates £500 taxable interest.
This group is hit the fastest and the hardest.
Under-65s Relying on ISAs
When the ISA allowance drops, under-65 savers:
- Lose £8,000 of sheltering
- Pay more tax
- Need to move sooner to optimise
People With Multiple Savings Accounts
Many savers spread money across:
- Fixed-rate bonds
- Easy-access accounts
- Regular savers
- High-rate promos
HMRC now sees interest from all of them combined. No account is “invisible.”
Real Examples: How Much Extra Tax Will You Pay?
Here are practical, 2025-based examples showing the real tax cost, based on official HMRC information.
Example #1 — Basic-Rate Taxpayer with £30k at 5%
- Annual interest: £1,500
- PSA covers: £1,000
- Taxable: £500
- Tax owed (20%): £100
Small, but it adds up annually — and grows as your savings grow.
Example #2 — Higher-Rate Taxpayer with £80k at 4%
- Annual interest: £3,200
- PSA: £500
- Taxable: £2,700
- Tax owed (40%): £1,080
This is where the pain begins.
Example #3 — Over-65 Retiree (keeps £20k ISA limit)
If they fill their full £20,000 ISA and hold £20,000 outside ISAs:
- Taxable interest is much lower
- Flexible ISA rules help shelter more
Retirees are shielded better than younger savers.
Example #4 — Saver With £200k Spread Across 4 Accounts
Even if split:
- £50k in each account
- 4% average interest
- Total interest: £8,000
- PSA: £0–£1,000 depending on tax band
- Tax owed could exceed £3,000
HMRC sees all four accounts instantly.
How to Legally Reduce or Avoid Paying More Savings Tax
Here are proven, HMRC-approved strategies to keep more of your interest.
1. Maximise ISA Allowance Every Year
For under-65s, use the full £20,000 allowance while it’s still available (until 2027).
If your ISA is empty, you’re leaving free tax sheltering on the table.
2. Use a “PSA Ladder Strategy.”
Break your savings into:
- A 1-year fixed
- An easy-access
- A lower-rate holding account
- A rolling bond
Spread interest so you don’t burst your PSA in a single account.
3. Move Long-Term Money Into Stocks & Shares ISAs
You don’t need to invest in risky assets. Many choose:
- Conservative funds
- Money market funds
- Low-volatility portfolios
This is one of the simplest ways to avoid interest tax entirely.
4. Consider Premium Bonds
Premium Bonds are fully tax-free and often used by higher-rate taxpayers who:
- Want zero risk
- Don’t want the hassle of multiple accounts
- Are you tired of being chased by HMRC letters
Returns aren’t guaranteed, but many prefer the clean tax treatment.
5. Use Household Sheltering
If your partner is in a lower tax band, consider shifting some savings legally:
- Joint accounts
- Transfers
- Allowance optimisation
This is fully allowed by HMRC.
6. Check Your Bank’s Interest Reporting
Some banks process interest on different dates.
Know when you cross your PSA so you can shift money earlier in the year.
Common Mistakes During the Savings Crackdown
Avoid:
- Assuming HMRC “won’t know” about every account
- Keeping £50k–£100k in a single easy-access account
- Ignoring the end of the 2026/2027 ISA transition window
- Forgetting interest on fixed-rate bonds counts
- Moving money around to “avoid reporting.”
Letting high-rate promotional accounts expire unnoticed
2025–2030 Trends Experts Expect
Experts predict:
- More pressure on savers as the government prefers investment over cash
- Possible PSA reduction in future budgets
- Automated compliance letters are becoming the norm
- ISA rules shifting toward long-term wealth, not short-term savings
- Continued high savings tax receipts
Savings Tax Readiness Checklist (7 Steps)
Your 1-page framework for staying ahead of HMRC:
- List every savings and fixed-rate account
- Add expected annual interest amounts
- Compare the total interest to your tax band PSA
- Max out your ISA every year
- Consider Premium Bonds for surplus cash
- Use partner sheltering if beneficial
- Review your plan every April
Savings Options vs Tax Exposure
| Product | Taxed? | Annual Limit | Good For | Notes |
|---|---|---|---|---|
| Cash ISA | No | £12k–£20k | Medium-term savings | Protects interest completely |
| Stocks & Shares ISA | No | £20k | Long-term growth | Market risk applies |
| Premium Bonds | No | Unlimited | Low-risk savers | Prize-based returns |
| Easy-Access Savings | Yes | None | Emergency funds | Highest tax exposure |
| Fixed-Rate Bonds | Yes | None | Guaranteed returns | Interest fully taxable |
FAQS
Q. Are HMRC going to tax your savings?
Yes. Savings interest above the Personal Savings Allowance (PSA) is taxable, and HMRC is expanding its monitoring systems to identify and tax this interest automatically.
Q. How much can you have in savings before being taxed?
It’s not about how much you save — it’s the interest. A basic-rate taxpayer can earn £1,000 interest tax-free. Higher-rate taxpayers get £500. Additional-rate taxpayers get no allowance.
Q. Do I need to tell HMRC about savings interest?
No, not usually. Banks now report your interest directly to HMRC, and tax is collected automatically through PAYE or via a tax bill.
Q. How does HMRC know about my savings accounts?
Banks and building societies send detailed interest records to HMRC every month. All accounts and interest are combined automatically.
Q. How can I avoid paying tax on savings interest legally?
Using ISAs, Premium Bonds, household sheltering, investing through tax-free wrappers, and spreading accounts to stay under PSA can reduce your tax exposure.
Q. What happens if I exceed my PSA?
HMRC will adjust your tax code or send a simple assessment. Interest is taxed at your normal income tax rate.
Q. Is there tax on Premium Bonds winnings?
No. All Premium Bonds prizes are completely tax-free.
Conclusion
The tax crackdown on savings accounts is real — and it’s already reshaping how savers should manage their money. The combination of tighter HMRC monitoring, reduced ISA sheltering for under-65s, and unchanged PSA limits means more people will face a tax bill than at any time in the past decade.
Take time to review your balances, plan for 2027, and use the steps, tables, and checklist above to keep more of your interest. A few smart moves can save you hundreds — sometimes thousands — each year.
Related: Rachel Reeves Pension Tax Relief Shake-Up: What UK Savers Need to Know in 2025
