Tax explained
How much savings interest can you earn tax-free?
Three allowances decide whether you pay tax on interest: the Personal Allowance, the starting rate for savings and the Personal Savings Allowance. Here is how they stack, with worked examples.
Most savers pay no tax on their interest at all. Whether you do depends on three allowances that stack in a set order. I'll take them one at a time.
The three allowances, in order
- Personal Allowance: the first £12,570 of all your income is tax-free. If your wages or pension don't use it up, the rest covers interest.
- Starting rate for savings: up to £5,000 of interest tax-free, but it shrinks £1 for every £1 of other income above £12,570. It's gone once other income reaches £17,570.
- Personal Savings Allowance: £1,000 of interest tax-free if you're a basic-rate taxpayer, £500 if higher-rate, nothing if additional-rate. Your band is set by your total income including the interest.
Your interest is added to your other income (wages, pension, rental profit) to work out your tax. The allowances then apply in this order.
Worked examples (2026-27)
| Other income | Starting rate left | Savings allowance | Tax-free interest |
|---|---|---|---|
| £12,570 or less | £5,000 | £1,000 | £6,000 plus any unused Personal Allowance |
| £15,000 | £2,570 | £1,000 | £3,570 |
| £17,570 to £50,270 | £0 | £1,000 | £1,000 |
| £50,271 to £125,140 | £0 | £500 | £500 |
| Over £125,140 | £0 | £0 | £0 |
Example A: wages £15,000. £15,000 − £12,570 = £2,430 of wages above the Personal Allowance, so the starting rate shrinks to £5,000 − £2,430 = £2,570. Add the £1,000 Personal Savings Allowance: up to £3,570 of interest tax-free.
Example B: wages £35,000 and interest £1,300. The starting rate is gone (other income over £17,570). The first £1,000 of interest is tax-free; the other £300 is taxed at 20% = £60. From April 2027, at 24%, the same £300 costs £72.
Example C: wages £60,000 and interest £1,300. A higher-rate taxpayer: £500 tax-free, £800 taxed at 40% = £320 now, or 44% = £352 from April 2027.
Things that catch people out
Interest can push you into a higher band. If your wages are just under £50,270, the interest on top may make you a higher-rate taxpayer, and your savings allowance drops from £1,000 to £500.
Interest counts in the tax year it's paid, not when it's earned. A fixed-rate bond that pays all its interest at the end can land several years' interest in one tax year.
Joint accounts: HMRC splits the interest equally between holders unless told otherwise.
Interest from cash ISAs doesn't count towards any of these allowances, and doesn't count when your band is worked out.
About this article
Allowances and thresholds are for the 2026-27 tax year, from GOV.UK. Rates from April 2027 follow Budget 2026 and are not yet law. Scotland has its own income tax bands for wages, but savings interest is taxed at the UK rates.
This is general information, not advice: it doesn't take your circumstances into account. Rates and rules can change; the sources below are where to check.
Sources
Some banks pay us when you open an account through our link. That never changes the order of our tables or what this report says.