Most people can earn at least some interest on their savings without paying any tax on it. Whether you pay anything depends on how much interest you earn, your other income, and whether the money sits inside an ISA. This guide explains the rules for the 2026/27 tax year (6 April 2026 to 5 April 2027) and shows, with examples, when a tax liability arises.
The quick answer
You may pay no tax at all on your savings interest, but the tax-free amount depends on your other income and whether the interest is inside an ISA.
Interest outside an ISA can be sheltered by up to three separate tax-free layers:
- any Personal Allowance you haven't already used up on wages or pension
- the starting rate for savings (up to £5,000 at 0%)
- the Personal Savings Allowance (up to £1,000)
Anything above the allowances available to you is taxed at your normal Income Tax rate. ISA interest is tax-free and sits completely outside the tax calculation. It doesn't use up any of the allowances and you don't need to declare it to HMRC.
In the right circumstances, someone could earn up to £18,570 of interest outside an ISA without paying tax on it, though that only works when you have little or no other income (more on that below). If you want to calculate the tax due using your own numbers, use the savings interest tax calculator.
What counts as savings interest
Before working out how much taxable interest you have, you need to know what to include. The allowances apply to interest from:
- bank and building society accounts
- ordinary savings accounts and credit union accounts
- peer-to-peer lending
- government or company bonds
- interest distributions from unit trusts, investment trusts and open-ended investment companies (OEICs)
- trust funds
- payment protection insurance (PPI) compensation interest
- life annuity payments and some life insurance contracts
Which tax-free allowances are available?
It helps to picture your income as a stack. Tax is worked out from the bottom up, and savings interest sits near the top, after your earned income and pension. Three layers can keep that interest tax-free.
1. Your Personal Allowance. Everyone gets a Personal Allowance — £12,570 for 2026/27 — which is the income you can have before any Income Tax is due. If your wages or pension don't use it all up, the leftover can cover savings interest tax-free.
2. The starting rate for savings. On top of that, you can get up to £5,000 of interest taxed at 0%. This band shrinks as your other (non-savings) income rises above your Personal Allowance: every £1 of other income above £12,570 reduces the starting rate band by £1. So once your non-savings income reaches £17,570, the starting rate has disappeared entirely. In practice it mainly helps people with low earnings or pensions and a lot of savings — not most employed basic-rate taxpayers.
3. The Personal Savings Allowance (PSA). Finally, most people get a further slice of tax-free interest. How much depends on your Income Tax band, worked out by adding your interest to the rest of your income:
| Your Income Tax band | Personal Savings Allowance (2026/27) |
|---|---|
| Non-taxpayer / basic rate (income up to £50,270) | £1,000 |
| Higher rate (£50,271 to £125,140) | £500 |
| Additional rate (over £125,140) | £0 |
In theory, someone with no other income could earn £18,570 of interest outside an ISA without paying any tax: £12,570 covered by the Personal Allowance, £5,000 covered by the starting rate for savings, and £1,000 covered by the PSA. However this would be quite unusual and would only apply to people with very large savings and no other income.
Another point to note is that the starting rate is reduced by non-savings income, such as salary, pension, self-employment profit or rental income but dividend income is not included. This means a company director/shareholder with a small salary and high dividends can still be entitled to the starting rate band, although the dividends still have an effect when working out their overall tax bands and other allowances.
How your other income affects the allowances and tax rate
Your savings allowances aren't fixed — your salary, pension, rental profit and any other taxable income decide how much of your interest is taxable.
Two things happen as your other income rises. First, the starting rate for savings is eaten away £1-for-£1 once your non-savings income passes £12,570, vanishing at £17,570. Second, your PSA depends on the band you land in once interest is added on top — £1,000 at basic rate, halving to £500 the moment any of your income reaches the higher-rate band, and zero at additional rate. So a single extra pound of salary that tips you into the higher-rate band can cost you £500 of tax-free interest allowance.
Scotland. If you are a Scottish taxpayer, you are taxed based on the Scottish Income Tax rates and bands on your earned income (wages, pension and so on). But savings interest is taxed at the UK rates, and your PSA is worked out using the UK (rest-of-UK) bands, not the Scottish ones.
Examples of savings interest tax
Here are a few short examples to illustrate different scenarios. All use 2026/27 figures and assume the saver isn't a Scottish taxpayer.
| Saver | Other income | Interest | Tax on the interest |
|---|---|---|---|
| Retiree, low income | £13,000 pension | £5,000 | £0 |
| Basic-rate employee | £30,000 salary | £800 | £0 |
| Company director/shareholder | £12,570 salary and £30,000 dividends | £6,000 | £0 |
| Higher-rate employee | £60,000 salary | £1,200 | £280 |
| Additional-rate taxpayer | £150,000 income | £1,200 | £540 |
Retiree on a low income. The £12,570 Personal Allowance covers most of the £13,000 pension, leaving only £430 of pension taxed at 20%. Because non-savings income is just £430 over the Personal Allowance, the starting rate for savings is £5,000 − £430 = £4,570. That 0% band covers all but £430 of the interest, and the £1,000 PSA covers the rest — so the entire £5,000 of interest is tax-free.
Basic-rate employee. With £30,000 of salary, this saver is a basic-rate taxpayer entitled to a £1,000 PSA. The £800 of interest is comfortably under that, so there's nothing to pay. (The starting rate doesn't apply here — other income is well over £17,570 — but it isn't needed.)
Company director/shareholder. The £12,570 salary uses the Personal Allowance, but the £30,000 of dividends does not reduce the starting rate for savings. The first £5,000 of interest is covered by the starting rate for savings and the remaining £1,000 is covered by the PSA, so there is no tax on the £6,000 interest (tax would be due on the dividends but that calculation is beyond the scope of this guide).
Higher-rate employee. A £60,000 salary makes this a higher-rate taxpayer, so the PSA is £500. Of the £1,200 interest, £500 is tax-free and the remaining £700 is taxed at the 40% higher rate — a bill of £280.
Additional-rate taxpayer. With income of £150,000, this saver is in the additional-rate band and gets no PSA at all. The full £1,200 of interest is taxed at 45%, giving £540.
You can test your own figures with the savings interest tax calculator.
How HMRC collects tax on savings interest
For most people this happens largely in the background. Banks, building societies and other providers pay interest without deducting tax, and report what they've paid you to HMRC each year. So HMRC usually knows what you've earned and can adjust your tax code accordingly although separate reporting is required in some cases as explained below.
How any tax is collected depends on your situation:
- If you're employed or get a pension, HMRC normally collects the tax by adjusting your tax code, estimating this year's interest from last year's figure. Because that estimate can be wrong — especially if your savings or rates have changed — it's worth checking the figure on your tax code notice. HMRC sends a tax calculation letter (a P800 or Simple Assessment) if you've under- or overpaid, usually between June and the following March.
- If you already complete a Self Assessment tax return, report your interest there alongside your other income.
- If none of those apply, your provider reports the interest and HMRC will tell you whether anything is due and how to pay it.
If your income from savings and investments is over £10,000 in the tax year, you must register for Self Assessment and report it, even if no tax turns out to be due. With higher interest rates in recent years, more savers are crossing this threshold. If you have savings income and multiple other sources of income, the Self Assessment tax calculator can help you see where you stand.
If you've paid tax on interest that was within your allowance, you can reclaim it within four years of the end of that tax year — through your tax return, or using form R40 if you don't file one.
ISAs, joint accounts and other considerations
A few common situations require further consideration:
- ISAs. Interest earned in a cash ISA is tax-free, doesn't use any allowance, and isn't declared on a tax return.
- Joint accounts. Interest is normally split equally between the account holders. Each person then applies their available allowances to their share of the income. If the money really belongs to you in different proportions, you can ask HMRC to recognise a different split.
- Other types. Foreign savings interest, children's accounts, certain NS&I products, trusts, the remittance/foreign-income rules, and chargeable-event gains on investment bonds all have their own treatment which are beyond the scope of this guide. If any of these apply to you, check the specific HMRC guidance or talk to your tax advisor.
A note on what's coming
For 2026/27, savings interest above your allowances is taxed at the normal Income Tax rates — 20%, 40% or 45%. The government has announced that from April 2027 the rates applied to savings income will rise by 2 percentage points. That doesn't affect the current tax year, but it's a reason to keep an eye on how much of your savings could be moved into an ISA.