Tax on savings interest
How much is tax free
Your allowances for earning interest before you have to pay tax on it include your:
- Personal Allowance
- starting rate for savings
- Personal Savings Allowance
You get these allowances each tax year (6 April to 5 April). How much you get depends on your other income.
You can get an estimate of how much tax you have to pay on interest from your savings.
Personal Allowance
If your Personal Allowance is not fully used by your wages, pension or other income, HMRC will apply it to your savings interest.
Depending on your total taxable income for the tax year, you may be able to get the starting rate for savings or the Personal Savings Allowance on top of your Personal Allowance.
Starting rate for savings
If your other taxable income (not including savings interest or dividends) is less than £17,570, you can get the starter rate for savings. This means you can earn up to £5,000 of interest and not have to pay tax on it.
The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be. 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 £200 interest on your savings.
Your Personal Allowance is £12,570. It’s used up by the first £12,570 of your wages.
The remaining £3,430 of your wages (£16,000 minus £12,570) reduces your starting rate for savings by £3,430.
Your remaining starting rate for savings is £1,570 (£5,000 minus £3,430). This means you will not have to pay tax on your £200 savings interest.
You can get the starting rate for savings as well as a Personal Savings Allowance.
Personal Savings Allowance
Depending on which Income Tax band you’re in, you may be able to earn up to £1,000 of interest without having to pay tax on it. This is your Personal Savings Allowance.
To work out your tax band, add all the interest you’ve earned to your other income.
| Income Tax band | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
If your savings interest is more than your allowance, you usually pay Income Tax on the amount above the allowance.
Example
HMRC estimates you earned £1,300 in savings interest in the previous tax year.
Your Personal Savings Allowance is £1,000 because you’re a basic rate taxpayer.
This means that the:
- first £1,000 is not taxed
- remaining £300 is taxed at 20% (basic rate)
- tax due on your savings interest is £60