Tax on savings interest: what UK savers need to know

Tax on savings interest is guided by your PSA (Personal Savings Allowance), which is the level of interest you can earn tax-free* each year. Your PSA is based on your personal tax band. A Cash ISA allows you to earn interest tax free, however these are guided by a £20,000 ISA allowance.

When would I need to pay tax on savings interest?

For most people, the first £12,570 of your annual income is tax-free. When it comes to savings, however, the taxable amount is subject to your tax bracket and PSA (Personal Savings Allowance). Basic rate taxpayers can earn up to £1,000 in tax-free annual interest, Higher rate taxpayers can earn up to £500, and Additional rate taxpayers are exempt from any PSA and have to pay tax on all their savings. So, tax on your savings interest is heavily influenced by your individual tax bracket.

How does the Personal Savings Allowance work?

Your PSA is dictated by your annual income level. Currently, people who earn anywhere between £12,571 and £50,270 a year are classed within the Basic rate PSA bracket and can earn up to £1,000 in tax-free annual interest.

Higher rate taxpayers are currently classed as earning between £50,270 and £125,140 and can earn up to £500 in annual tax-free interest.

Additional rate taxpayers earn upwards of £125,140 annually and are exempt from any PSA benefit, paying tax on all their annual interest earnings. The only way to earn tax-free interest in this bracket is with a Cash ISA.

How are Cash ISAs treated?

Cash ISAs currently allow people to save up to £20,000 a year (their ISA allowance) in accounts which are shielded from tax on interest. This can be beneficial to all taxpayers but can be particularly helpful to high-earners who may be exempt from any PSA benefit.

What records and current guidance should you check?

The government guidelines via HMRC are worth reviewing regularly to keep up to date with evolving guidance around tax on savings interest. ISA rules are set to change in the next tax year (from 6 April 2027 onwards), so being aware of upcoming shifts can help you plan how you manage tax on your savings. Click here to review the current and upcoming government guidelines.

A tax on savings interest checklist

To summarise:

• The amount of tax you pay on your savings interest depends on your PSA (Personal Savings Allowance).
• Depending on your individual tax bracket, your PSA can allow you to earn up to £1,000 (Basic rate), £500 (Higher rate) or £0 (Additional rate) of tax-free annual interest.
• A Cash ISA shields your interest from tax. However, it’s currently subject to an annual £20,000 ISA allowance, meaning you can’t deposit more than this into a Cash ISA in a single year.
• Government tax guidelines are always evolving and are set to change during the next tax year (6 April 2027 onwards) particularly relating to ISA allowances, so keeping informed via the official HMRC website can help you plan ahead.

Frequently asked questions

How much tax will I pay on my savings?

You’ll be taxed based on your personal tax rate (20% for Basic, 40% for Higher and 45% for Additional). Each of these brackets also has a corresponding PSA which allows you to earn £1,000, £500 or £0 of annual tax-free interest respectively.

How much savings interest can I earn before paying tax?

Your PSA will allow you to earn savings interest before paying tax, depending on your income tax bracket. Basic rate taxpayers can earn £1,000 and Higher rate taxpayers can earn £500.

What is the Personal Savings Allowance?

The personal savings allowance (or PSA) allows taxpayers in certain tax brackets to earn a specific amount of tax-free interest each year.

Do I need to tell HMRC about interest earned on my savings?

In most cases you won’t need to inform HMRC of this as banking providers will tend to do it automatically. However, in certain cases, such as if you earn over £10,000 in annual interest on savings or owe tax and have not received a P800 to rectify the balance, then you can contact HMRC directly for self-assessment.

How does HMRC collect tax on savings interest?

In many cases, the PAYE system will automatically collect tax on savings via communication with HMRC, who’ll adjust your tax code according to how much you owe. However, if you qualify for a self-assessment tax return then you’ll need to declare your savings interest in your annual tax return. HMRC may also send you a P800 letter to fill out with which to calculate the tax you owe.

Do I pay tax on interest from all my savings accounts?

Cash ISAs have the benefit of shielding your interest from tax, meaning you wouldn't pay tax on interest earned in those accounts. In all other savings accounts, the tax you pay would be guided by earnings more than your PSA.

Is interest earned in a Cash ISA tax-free?

Yes, interest earned in a Cash ISA is tax-free provided ISA rules are followed by your providers, and you do not move the money yourself.

Next steps

For further helpful information regarding tax on savings interest, feel free to review the following links:

View Easy Access savings

View Cash ISAs

View the interest rate summary

Savings products at a glance

^*Tax treatment depends on an individual’s circumstances and may be subject to change in the future.