Personal Savings Allowance: Tax on Savings Interest
Most people can earn some savings interest tax-free each tax year through the Personal Savings Allowance: £1,000 if you pay Income Tax at the basic rate, £500 at the higher rate, and £0 if you are an additional rate taxpayer. Some people with lower other income may also benefit from the starting rate for savings of up to £5,000. These allowances apply in the tax year from 6 April to 5 April.
The three allowances
According to GOV.UK, three main reliefs can affect how savings interest is taxed each year:
- Your Personal Allowance for Income Tax on general income (the standard amount is £12,570 in the 2026 to 2027 tax year).
- The starting rate for savings for those on low incomes.
- The Personal Savings Allowance for interest once your income band is known.
Interest from ISAs and some NS&I products is usually not taxed, so it does not count against these allowances. Products such as Premium Bonds pay prizes rather than interest, with separate tax rules on prizes.
Understanding your Income Tax band is essential, because it sets your Personal Savings Allowance. Our guides to UK Income Tax bands and tax codes explain how PAYE income and codes interact with savings. Scotland has different Income Tax bands.
Personal Savings Allowance by band
To find your band, add all your savings interest to your other income for the tax year.
| Tax band (England, Wales, Northern Ireland) | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
Interest above your allowance is usually taxed at your normal Income Tax rate for savings.
GOV.UK’s example for a basic rate taxpayer: £1,300 of interest means the first £1,000 is not taxed, and £300 is taxed at 20%, which is £60 tax.
If your income rises or falls, your band and allowance can change.
Starting rate for savings
The starting rate for savings can give up to £5,000 of interest tax-free if your other taxable income (excluding savings interest and dividends) is less than £17,570.
For every £1 of other income above your Personal Allowance, the starting rate is reduced by £1. So the £5,000 maximum only applies when your other income is within the Personal Allowance.
GOV.UK’s example: £16,000 wages and £200 interest in a tax year. The £12,570 Personal Allowance is used against the wages, and the remaining £3,430 of wages reduces the starting rate from £5,000 to £1,570. The £200 interest sits within the remaining starting rate, so no tax is due on the interest.
Joint and multiple accounts
If you hold a joint account, HMRC splits the interest equally between the account holders for tax purposes. Contact HMRC if you think it should be split differently.
If you have more than one account, HMRC adds the interest together from all your taxable savings accounts when calculating tax.
Cash in ISAs remains outside these calculations while it stays in the ISA. Other savings products may pay taxable interest.
How the tax is collected
After 5 April each year, banks and building societies tell HMRC how much interest they paid you.
If your savings interest is £10,000 or less and you are employed or get a pension, HMRC usually sends a tax calculation (often between June and the following March) and collects any tax due through your tax code in most cases.
If you complete Self Assessment, you report savings interest on your tax return instead.
GOV.UK’s timeline example: tax due on interest from the 2025 to 2026 tax year is notified during 2026 to 2027 and is usually collected through your tax code in 2027 to 2028.
Frequently asked questions
How much is the Personal Savings Allowance?
In each tax year, basic rate taxpayers have £1,000, higher rate taxpayers £500, and additional rate taxpayers £0. Your band depends on your total income including savings interest.
What is the starting rate for savings?
If your other taxable income (excluding savings interest and dividends) is less than £17,570, you may earn up to £5,000 of interest tax-free. Each £1 of other income above your Personal Allowance reduces the starting rate by £1.
Are ISAs included in these allowances?
Interest on ISAs and some NS&I products is usually not taxed, so it does not use up your Personal Savings Allowance.
How does HMRC collect tax on savings interest?
Banks and building societies report interest to HMRC after 5 April each year. If you are employed or receive a pension and owe tax on interest of £10,000 or less, HMRC usually adjusts your tax code; if you complete a Self Assessment tax return, you report the interest there.
How is interest on a joint account taxed?
HMRC splits interest from joint accounts equally between the holders and adds interest from all your accounts together when working out tax due.
Sources
Disclaimer: This article is general information and not personal financial, tax or legal advice. Check your own situation with HMRC, GOV.UK or a regulated adviser.