Tax on Savings Interest: Personal Allowances Explained (2025/26)

How much savings interest can I earn tax-free in the UK?

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

The amount depends on:

• Your Personal Allowance (£12,570 in 2025/26).

• The Starting Rate for Savings (up to £5,000 if your income is low).

• The Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate).

What is the Personal Allowance for savings interest?

Your Personal Allowance covers all types of income — wages, pensions, and savings.

• If your wages/pension use up the full £12,570 allowance, you don’t get extra for savings.

• If you earn less than £12,570, you can use the leftover allowance to cover savings interest.

What is the Starting Rate for Savings?

The Starting Rate for Savings lets some people earn up to £5,000 interest tax-free.

• If your other income (wages/pension) is less than £17,570, you may qualify.

• The allowance reduces by £1 for every £1 of other income above your Personal Allowance.

• If your other income is £17,570 or more, you don’t qualify.

👉 Example: You earn £16,000 from wages and £200 savings interest.

• £12,570 is tax-free (Personal Allowance).

• The remaining £3,430 reduces your Starting Rate from £5,000 to £1,570.

• Your £200 savings interest is still covered.

What is the Personal Savings Allowance?

The Personal Savings Allowance depends on your Income Tax band:

• Basic rate taxpayers (20%) → £1,000 interest tax-free.

• Higher rate taxpayers (40%) → £500 interest tax-free.

• Additional rate taxpayers (45%) → No allowance.

This applies to interest from:

• Bank & building society accounts.

• Credit union and savings accounts.

• Unit trusts, investment trusts, and OEICs.

• Peer-to-peer lending.

• Government or corporate bonds.

• Trust funds & certain life insurance contracts.

👉 Savings in ISAs or some NS&I products are always tax-free and don’t count towards your allowance.

How is tax paid on savings interest?

If you’re employed or on a pension

HMRC changes your tax code to collect the tax automatically.

• They estimate based on last year’s savings interest.

• You may get a tax calculation letter if you over/under pay.

If you’re self-employed

• Report savings interest on your Self Assessment return.

• You must register if total savings & investment income exceeds £10,000.

If you don’t complete Self Assessment

• Banks/building societies report interest to HMRC.

• HMRC will contact you if tax is due.

What happens if I go over my savings allowance?

• Any interest above your allowance is taxed at your usual Income Tax rate.

• If HMRC doesn’t adjust your tax code or send a letter by 31 March the following year, you should contact them to avoid penalties.

Can I reclaim tax paid on savings interest?

Yes. If tax was taken but your interest was below your allowance, you can reclaim it.

• Via your Self Assessment tax return, or

• By submitting a claim to HMRC (within 4 years of the end of the tax year).

Common Questions About Savings Interest Tax

Q: How much savings interest is tax-free in the UK (2025/26)?

It depends on your tax band: £1,000 (basic), £500 (higher), £0 (additional). Plus, you may qualify for the Starting Rate for Savings if your income is under £17,570.

Q: Does ISA interest count towards my allowance?

No. ISAs are completely tax-free and separate from other allowances.

Q: What if I have a joint account?

Interest is normally split 50/50 between account holders. Contact HMRC if it should be different.

Q: Do I need to tell HMRC about my savings interest?

Only if it takes you over your allowance or you’re required to file a Self Assessment. Otherwise, banks/building societies report it directly to HMRC.

References

This information has been collated using official guidance from HMRC.