How savings interest is taxed in the UK
In the UK, savings interest from banks, building societies, peer-to-peer lending, and government gilts is treated as taxable savings income under Part 2 of the Income Tax Act 2007. However, most individuals pay little or no tax on savings because of generous statutory allowances.
Your non-savings income (such as salary or pension) uses your £12,570 Personal Allowance first. Any remaining Personal Allowance can shelter savings interest. In addition, the Personal Savings Allowance (PSA) allows basic rate taxpayers to earn up to £1,000 of interest tax-free, and higher rate taxpayers to earn up to £500 tax-free. Additional rate taxpayers receive no Personal Savings Allowance.
Worked example of UK savings interest tax
Consider a taxpayer earning £32,000.00 in employment salary who receives £1,500.00 in annual taxable savings interest from bank deposits. With total income of £33,500.00, the individual sits comfortably within the basic rate tax bracket.
The taxpayer qualifies for the full statutory £1,000.00 Personal Savings Allowance, which is taxed at 0%. Subtracting this £1,000.00 allowance from £1,500.00 leaves £500.00 in taxable savings interest.
Taxed at the standard 20% basic rate, the total tax due on savings interest is £100.00. This leaves £1,400.00 in net savings interest kept, representing an effective tax rate of 6.67% across total gross interest.
The £5,000 starting rate for savings
Low earners may also qualify for the £5,000.00 starting rate for savings at 0% tax. If your non-savings income (salary, pension, or rental profits) is less than your Personal Allowance (£12,570) plus £5,000, you receive a starting rate band.
For every £1 of other income above £12,570, the £5,000 starting rate band is reduced by £1. If your other income reaches £17,570 or more, the starting rate is £0, but you still keep your £1,000 or £500 Personal Savings Allowance.
If you also receive dividend income from company shares, visit our dividend tax calculator.
To see your overall income tax brackets and allowances, explore the UK income tax calculator.
Tax-free Cash ISAs and reporting to HMRC
Interest earned within an Individual Savings Account (Cash ISA or Stocks & Shares ISA) is 100% tax-free under UK law. ISA interest does not count towards your Personal Savings Allowance, does not use up any tax bands, and never needs to be declared on a tax return.
Banks and building societies report interest directly to HMRC. If you owe tax on savings interest and are employed or receive a pension, HMRC usually adjusts your PAYE tax code automatically so the tax is collected over the following year. If you already file a Self Assessment return, you declare your savings interest there.
Inputs for the savings tax calculator
Tax year
The UK tax year for your savings assessment (runs 6 April to 5 April).
Taxable savings interest
Total annual interest from non-ISA bank accounts, building societies, and fixed-term bonds.
Other taxable income
Annual earnings from employment, self-employment, pensions, or rental profits.
Tax-free ISA interest
Annual interest earned in Cash ISAs, which is 100% tax-free and excluded from HMRC calculations.
Tax region
Your tax jurisdiction for UK Income Tax rates and tax band thresholds.
CALCULATOR QUESTIONS
Savings tax calculator questions
What is the Personal Savings Allowance (PSA)?
The Personal Savings Allowance lets you earn up to £1,000 in savings interest tax-free if you are a basic rate taxpayer (20%), or £500 if you are a higher rate taxpayer (40%). Additional rate taxpayers (45%) do not get an allowance.
Do Scottish taxpayers pay Scottish income tax rates on savings?
No. Taxation of savings interest is reserved to the UK Parliament. Scottish taxpayers pay standard UK savings tax rates: 0% within allowances, 20% basic, 40% higher, and 45% additional.
Does Cash ISA interest count towards my savings allowance?
No. All interest earned in a Cash ISA is completely free from UK Income Tax and does not use up any of your Personal Savings Allowance.
How do I pay tax on savings interest to HMRC?
If you pay tax through PAYE, HMRC will automatically adjust your tax code based on information provided by banks. If you complete a Self Assessment tax return, you must declare your total non-ISA savings interest on your return.