Do I pay tax on my savings interest?

Most people pay nothing. Your Personal Savings Allowance lets a basic-rate (20%) taxpayer earn £1,000 of savings interest a year tax-free, a higher-rate (40%) taxpayer £500, and an additional-rate (45%) taxpayer £0. On top of that, people with a low non-savings income can use the starting rate for savings of up to £5,000. Money held in an ISA is always tax-free and does not use the allowance at all. You only pay tax on interest above your allowances, and it is charged at your normal income tax rate.

What is the Personal Savings Allowance for 2026?

£1,000 of tax-free savings interest a year if you are a basic-rate taxpayer, £500 if you are a higher-rate taxpayer, and £0 if you are an additional-rate taxpayer. These bands have not changed for several years. Because the allowance is frozen while savings rates have risen, far more people now earn enough interest to go over it — so it is worth checking, even if you never used to pay savings tax.

How does HMRC collect tax on savings?

Banks and building societies report the interest they pay you to HMRC automatically — you do not declare it separately unless you complete a Self Assessment tax return. For most people HMRC then adjusts your tax code so the tax is taken gradually from your wages or pension. If you file a Self Assessment return, you include the interest there instead. ISAs are not reported because they are tax-free.

Is interest in an ISA taxed?

No. Interest, dividends and growth inside an ISA — including a cash ISA and a Lifetime ISA — are always tax-free, for life, and do not count towards your Personal Savings Allowance. That is why moving savings into a cash ISA can protect the interest once you are close to going over your allowance. Premium Bond prizes are also tax-free.

What about joint accounts and Scotland?

Interest on a joint account is normally split 50/50, so each person uses their own allowance on their half. The Personal Savings Allowance is a UK-wide rule, but which band you fall into depends on your income tax rate — and Scotland has its own income tax bands, so a Scottish taxpayer should check which UK savings-rate band (basic, higher or additional) they count as. Always confirm your own position before acting.

Tax on savings: the Personal Savings Allowance

Your allowance — and why ISAs never count

There are three layers of tax-free savings interest, and most people are covered by them without doing anything:

Your tax band	Tax-free savings interest a year
Basic-rate taxpayer (20%)	£1,000 Personal Savings Allowance
Higher-rate taxpayer (40%)	£500 Personal Savings Allowance
Additional-rate taxpayer (45%)	£0 — no allowance
Low non-savings income	Up to £5,000 extra under the starting rate for savings
Money held in an ISA	Always tax-free — doesn’t use any allowance

The starting rate for savings helps people whose other (non-savings) income is low: you can earn up to £5,000 of savings interest tax-free on top of the Personal Savings Allowance, but the £5,000 is reduced £1 for every £1 your non-savings income is above your personal allowance — so it mostly helps pensioners and low earners. Premium Bond prizes are tax-free too, and don’t use your allowance.

The reassuring bit To use up a £1,000 allowance at, say, a 4.5% rate you’d need roughly £22,000 sitting in ordinary (non-ISA) savings. Most people’s everyday savings stay well inside the allowance — so for the majority, savings interest is simply tax-free and there is nothing to do.

Going over — the frozen-allowance trap

You only pay tax on interest above your allowances, and it’s charged at your normal income tax rate (20%, 40% or 45%). The reason this now catches people it never used to:

The Personal Savings Allowance has been £1,000 / £500 / £0 for years — it hasn’t risen with inflation.
Savings rates rose sharply, so the same pot of savings now throws off far more interest.
If your pay rises into the higher-rate band, your allowance halves from £1,000 to £500 at the same time — a double hit.

Coming change — announced, not yet in force From 6 April 2027, the tax rates on savings income are due to rise by 2 percentage points — to 22% (basic rate), 42% (higher rate) and 47% (additional rate). Announced at the Autumn Budget 2025. It does not apply yet: for 2026/27 savings interest above your allowance is still taxed at your normal 20% / 40% / 45% Income Tax rate. Interest inside an ISA stays tax-free, so it would not be affected.

Check if you’ve tipped over Add up the interest from all your non-ISA savings accounts across the tax year (your bank’s annual interest statement or app shows it). Compare it to your allowance. If you’re close to or over, the interest above the allowance is taxable — and HMRC may already be collecting it without you noticing (see below).

How HMRC takes it — usually through your tax code

You generally don’t have to declare savings interest yourself:

Banks and building societies report your interest to HMRC automatically after the end of the tax year.
If you don’t do a tax return, HMRC then usually changes your tax code so the tax on any interest over your allowance is collected gradually from your wages or pension.
If you complete a Self Assessment return, you include the interest there instead — see our Self Assessment guide.
ISA interest is never reported because it’s tax-free — which is the whole point of an ISA.

How to keep more of it The simplest legal way to protect savings interest once you’re near your allowance is to hold savings in a cash ISA (up to £20,000 a year across all ISAs) — the interest is tax-free for life and never touches the Personal Savings Allowance. A Lifetime ISA or Help to Save can suit specific goals too.

Do this now

Open your bank app and find your total savings interest for the year (it’s usually under statements or a tax-year summary). Compare it to your allowance — £1,000 basic-rate, £500 higher-rate.

Over it, or close? Consider moving savings into a cash ISA before the interest builds further, and check your tax code on the free HMRC app or Personal Tax Account so you can see if savings tax is already being collected — and challenge it if it looks wrong.

Not financial advice SortedUK is not a regulated financial adviser. This is general information about how the tax works. For free, impartial guidance on your own situation, use the government-backed MoneyHelper service, and confirm current rates and your own tax position on GOV.UK before acting.

Source verification

Primary sourceGOV.UK — Tax on savings interest (Personal Savings Allowance, starting rate for savings, how it’s collected); MoneyHelper — tax on savings and ISAs

Specific URLgov.uk/apply-tax-free-interest-on-savings

Last verified12 July 2026 (framework last verified 13 June 2026)

Coming changeFrom 6 April 2027 the rates on savings income are due to rise 2 percentage points to 22% / 42% / 47% (announced at the Autumn Budget 2025; House of Commons Library briefing CBP-10450). Announced, not yet in force — the 2026/27 rates on this page are unchanged.

ConfidenceHigh on the framework — the PSA (£1,000 / £500 / £0), the £5,000 starting rate, the £20,000 ISA allowance and the tax-code collection method are long-standing rules. Always confirm the current year’s figures on GOV.UK, as allowances can change at a Budget.

Key factsBasic-rate £1,000 / higher-rate £500 / additional-rate £0 tax-free interest · starting rate for savings up to £5,000 (tapered) · ISAs always tax-free, don’t use the allowance · interest over the allowance taxed at your normal rate · banks report to HMRC → tax code adjustment or Self Assessment · Premium Bond prizes tax-free · joint accounts split 50/50

ScopeUK-wide. Which PSA band applies depends on your income tax rate; Scotland has its own income tax bands, so a Scottish taxpayer should check which band they count as.

Tax on savings — common questions

Do I pay tax on savings interest?

Most people don’t. Basic-rate taxpayers get £1,000 of savings interest tax-free a year, higher-rate £500, and ISA interest is always tax-free. You only pay on interest above your allowance, at your normal income tax rate.

What is the Personal Savings Allowance?

The amount of savings interest you can earn tax-free each year: £1,000 basic-rate, £500 higher-rate, £0 additional-rate. It has been frozen for years, so more savers now exceed it as rates have risen.

How does HMRC collect the tax?

Banks report your interest to HMRC automatically. If you don’t file a tax return, HMRC usually adjusts your tax code to collect any tax due gradually. If you do Self Assessment, you declare the interest there.

Is ISA interest taxed?

No — interest, growth and dividends inside an ISA (including cash ISAs and the Lifetime ISA) are tax-free for life and don’t count towards your Personal Savings Allowance. Premium Bond prizes are tax-free too.

How do I keep more of my interest?

Hold savings in a cash ISA (up to £20,000 a year) once you’re near your allowance, so the interest stays tax-free. Check your tax code on the HMRC app, and use MoneyHelper for free guidance on your own situation.

Sources The Personal Savings Allowance, the starting rate for savings and how the tax is collected · GOV.UK — Tax on savings interest. ISA rules and the £20,000 allowance · GOV.UK — Individual Savings Accounts. Free impartial guidance · MoneyHelper. SortedUK is not a regulated financial adviser and this is general information — confirm current figures and your own position on GOV.UK before acting. Last reviewed: 13 June 2026.

Do you pay tax on your savings? Most people don’t — but more do every year.

Your allowance — and why ISAs never count

Going over — the frozen-allowance trap

How HMRC takes it — usually through your tax code

Tax on savings — common questions

Check the number before HMRC does. Then protect it.

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