UK savers may face higher taxes as the £20,000 tax-free allowance could drop by £8,000 in 2027.

UK savers face potential tax increases on interest earnings as the £20,000 tax-free savings allowance may drop by £8,000, with changes taking effect in 2027. Experts warn that without careful planning, individuals could exceed their personal savings allowance—£1,000 for basic-rate taxpayers, £500 for higher-rate, none for additional-rate—leading to unexpected tax bills. With interest rates near 5%, saving £20,000 could generate £1,000 in interest, pushing some over the limit. Financial advisers recommend using cash ISAs and stocks and shares ISAs to maximize tax-free savings. Martin Lewis emphasized that only interest is taxed, not the principal, and that savings accounts offer FSCS protection up to £120,000—higher than home insurance coverage for cash theft—making them safer and more profitable than keeping money at home.