Tax alert: Savers and investors face £28billion hit under 'triple threat' raid from HMRC

Britons are being reminded to check their tax liability when it comes to saving and investing following the publication of the latest HMRC figures

Britons are being reminded to check their tax liability when it comes to saving and investing following the publication of the latest HMRC figures

HM Revenue and Customs (HMRC) figures reveal that dividend tax is projected to generate £19.8billion during the 2026/27 financial year, whilst levies on savings interest will bring in £8.2billion.

The dividend tax haul represents a 10 per cent rise compared to the previous year, driven by Chancellor Rachel Reeves's decision to increase rates by two percentage points for basic and higher rate taxpayers from April.

Charlene Young, senior pensions and savings expert at AJ Bell, said: "Tax bills on investment income will hit almost £20billion this year thanks to increases in dividend tax rates for basic rate and higher rate investors at the start of the tax year."

The savings tax collection has more than quadrupled over the past four years, reflecting persistently elevated interest rates and stubborn inflation.

Savers face what experts describe as a triple threat of tax increases in the coming year. Those under 65 will see their cash ISA allowance slashed from £20,000 to £12,000, significantly reducing the amount they can shelter from the taxman.

Additionally, cash held outside traditional cash ISAs will attract a new 22 per cent flat rate charge on any interest earned.

Tax rates on non-ISA savings will also climb by two percentage points across every band, rising to 22 per cent, 42 per cent and 47 per cent respectively.

Ms Young said: "Over £15billion was stuffed in cash ISAs in the first two months of this tax year alone, which is no surprise when you consider that savers will face a triple threat of tax hits next year."

Frozen income tax thresholds are compounding the problem, dragging more savers into higher tax brackets even when their real purchasing power remains static.

Ms Young shared: "The order of taxation means that income from savings and investments sits on top of people's earnings and forms the highest slice of their total income.

"When it comes to savings, frozen income tax thresholds mean more people are finding themselves taxed at higher rates, even when their overall spending power has not increased by the same amount."

The personal savings allowance has remained unchanged at £1,000 for basic rate taxpayers since its introduction over a decade ago.

Higher rate taxpayers receive just £500, whilst additional rate taxpayers get no allowance whatsoever, leaving them facing a 45 per cent charge on savings held outside tax-efficient wrappers.

The tax-free dividend allowance has been decimated since its 2016 introduction, when investors could receive £5,000 without paying tax.

Ms Young stated: "Dividend tax bills continue to climb thanks to an increase in the rates of tax for investors in the basic and higher income tax bands, and the dividend tax allowance continuing to sit at a measly £500."

The burden falls disproportionately on the wealthiest, with additional rate taxpayers now responsible for nearly half of all savings and dividend tax collected.