How Is Savings Interest Taxed? 2026/27 UK Guide

Updated for 2026/27. UK bank and building-society interest is normally paid gross, without tax deducted. Whether tax is due depends on your total income, the starting rate for savings, your Personal Savings Allowance and tax-free accounts such as ISAs.

Personal Savings Allowance for 2026/27

• Basic-rate taxpayers: up to £1,000 of savings interest
• Higher-rate taxpayers: up to £500
• Additional-rate taxpayers: no Personal Savings Allowance

The allowance is a 0% tax band rather than a deduction. Interest within it still counts when determining your tax band and adjusted net income, which can affect the amount of allowance available.

Starting rate for savings

Up to £5,000 of savings income may qualify for the 0% starting rate where your other income is low. The band is reduced by £1 for every £1 of non-savings income above the Personal Allowance. If non-savings income reaches the Personal Allowance plus £5,000, no starting-rate band remains.

Someone with modest pension or employment income may therefore receive more tax-free interest than the Personal Savings Allowance alone suggests.

Tax-free savings

Interest from a cash ISA is normally tax-free and does not use the Personal Savings Allowance. The overall ISA subscription limit remains £20,000 for 2026/27, subject to the ISA rules and any future changes announced by the government. Some National Savings & Investments products, such as Premium Bond prizes, are also tax-free.

What counts as savings income?

• Interest from bank and building-society accounts
• Credit-union and certain savings-provider interest
• Interest distributions from authorised funds
• Interest on government and corporate bonds in relevant circumstances
• Interest on loans made privately or through some peer-to-peer platforms
• Purchased-life-annuity interest elements and certain overseas interest

Dividend income follows separate dividend allowance and rate rules. Capital growth is not bank interest and may instead fall under Capital Gains Tax.

How savings interest is taxed

Taxable savings income generally sits above non-savings income and below dividends when income is stacked. For most UK taxpayers, savings rates are 20%, 40% and 45% after available 0% bands. Savings and dividend income use UK-wide rates even where Scottish rates apply to employment, pension or property income.

Example: basic-rate taxpayer

Amir has salary of £32,000 and receives £1,300 of ordinary bank interest in 2026/27. Assuming he remains a basic-rate taxpayer, £1,000 falls within his Personal Savings Allowance and £300 is taxable at 20%, producing £60 tax.

Example: starting-rate saver

Helen has pension income of £14,000 and bank interest of £4,000. Her exact result depends on the Personal Allowance and other circumstances, but part or all of the interest may fall within the starting rate for savings and Personal Savings Allowance. The bands must be calculated in the correct order.

Joint accounts

Interest is normally split equally between joint account holders unless the beneficial ownership is different and can be evidenced. Spouses and civil partners should not simply allocate all interest to the person with the larger unused allowance without reflecting genuine ownership.

Overseas interest

UK residents may need to report foreign interest even if it is kept abroad or tax was deducted overseas. Foreign tax credit relief can sometimes prevent double taxation. Residence, domicile, the four-year foreign income and gains regime where applicable, treaty rules and currency conversion can make the treatment complex.

How HMRC collects the tax

Banks report interest to HMRC. HMRC may adjust a PAYE tax code or issue a calculation after the tax year. If you complete Self Assessment, include the full amount of taxable and untaxed interest in the return rather than only the amount above your allowance.

If savings and investment income is more than £10,000, Self Assessment registration is normally required. For lower amounts not fully dealt with through PAYE, contact HMRC using the current reporting route.

Records to keep

• Annual interest certificates and account statements
• Dates and beneficial ownership of joint accounts
• Foreign statements and exchange-rate calculations
• ISA subscription records
• HMRC tax-code notices and calculations

Keep records for the period required for your tax-return status. Check that HMRC has not counted a closed account twice or estimated interest incorrectly.

Reducing tax lawfully

Use available ISA subscriptions, compare ownership between spouses or civil partners only where transfers are genuine, and consider the timing and type of savings products. Do not move money solely on the assumption that every “tax-free” product is suitable; interest rates, access and Financial Services Compensation Scheme protection also matter.

Read HMRC’s official guidance on tax on savings interest and ISAs. Our guide to types of taxable income explains how savings fit with other income.

Frequently asked questions

Do banks deduct tax before paying interest?

Normally no. Most UK savings interest is paid gross and HMRC collects any tax due separately.

Does ISA interest use my Personal Savings Allowance?

No. ISA interest is separately tax-free.

Should I report gross or taxable interest?

Provide the full reportable interest figure; the tax calculation applies the relevant allowances and 0% bands.

This guide is general information. Savings tax depends on total income, residence and account ownership.