Savings interest tax explained

Interest on bank and savings accounts is taxable income — but the Personal Savings Allowance (PSA) means most people never pay a penny. Your allowance depends on your highest Income Tax band, and interest above it is taxed at your marginal rate.

The Personal Savings Allowance

In 2026/27 the PSA is:

• £1,000 for basic-rate taxpayers
• £500 for higher-rate taxpayers
• £0 for additional-rate taxpayers

Your band is decided by your total income, not just your savings. A salary of £55,000 puts you in the higher-rate band, so you get only £500 of tax-free interest even though the salary itself isn’t savings income.

What happens above the allowance

Interest above your PSA is taxed at your highest Income Tax rate — 20%, 40% or 45%. It’s treated as the top slice of your income, sitting above salary and rental income.

Example. You earn £20,000 from salary and receive £1,500 in savings interest. Your salary keeps you in the basic rate band, so the PSA is £1,000. Taxable interest is £1,500 − £1,000 = £500, taxed at 20% — a bill of £100.

The starting rate for savings

There’s also a starting rate for savings: if your other taxable income is below £17,570, you get a 0% band of up to £5,000 for interest. It’s phased out as your other income rises, so it mainly helps low-income savers.

How you pay

For most people there’s nothing to do — banks report interest to HMRC and any tax is collected automatically through the tax code. If you complete a Self Assessment return, include your savings interest there.

See the maths

Use the Savings Interest Tax calculator for your exact bill, and the ISA calculator to see how much you can shelter from tax entirely.