Tax on savings interest

How much tax you pay

Most people can earn some interest from their savings without paying tax.

Your allowance for earning interest tax-free is made up of the following:

  • Personal Allowance
  • starting rate for savings - depending on your other income
  • Personal Savings Allowance - depending on your Income Tax band

You get this allowance each tax year. The tax year runs from 6 April to 5 April the following year.

Personal Allowance

You can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension or other income.

Starting rate for savings

You may also get up to £5,000 of interest tax-free. This is your starting rate for savings.

The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.

If your other income is £16,850 or more

You’re not eligible for the starting rate for savings if your other income is £16,850 or more.

If your other income is less than £16,850

Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

Example You earn £16,000 of wages and get £200 interest on your savings.

Your Personal Allowance is £11,850. It’s used up by the first £11,850 of your wages.

The remaining £4,150 of your wages (£16,000 minus £11,850) reduces your starting rate for savings by £4,150.

Your remaining starting rate for savings is £850 (£5,000 minus £4,150). You do not pay tax on your savings interest.

Personal Savings Allowance

You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance.

Income Tax band Tax-free savings income
Basic rate £1,000
Higher rate £500
Additional rate £0

Savings covered by your allowance

Your allowance applies to interest from:

  • bank and building society accounts
  • savings and credit union accounts
  • unit trusts, investment trusts and open-ended investment companies
  • peer-to-peer lending
  • trust funds

Your allowance also applies to interest from:

  • government or company bonds
  • life annuity payments
  • some life insurance contracts

Savings already in tax-free accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments accounts do not count towards your allowance.

There are different rules for tax on foreign savings and children’s accounts.

Interest on joint accounts

If you have a joint account, interest will be split equally between the account holders. Contact the savings helpline if you think it should be split differently.

If you go over your allowance

You’ll pay tax on any interest over your allowance at your usual rate of Income Tax.

If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.

If you complete a Self Assessment tax return, report the extra interest there.

If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it.

If the interest you received was £10,000 or more, you’ll need to complete a Self Assessment tax return.

If you already paid tax on your savings income

You can reclaim tax paid on your savings interest if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year.

Fill in form R40 and send it to HMRC. It normally takes 6 weeks to get the tax back.