When managing client portfolios in the 2026/27 tax year, National Savings & Investments (NS&I) products remain a cornerstone of tax-efficient planning. Backed by HM Treasury, these products offer a mix of tax-free prizes, exempt income, and gross-paid taxable interest. Understanding the precise legislative mechanisms governing these products allows tax professionals to optimise their clients’ savings income against available statutory allowances.
This guide outlines the taxation of National Savings & Investments (NS&I) products for the 2026/27 tax year, detailing the statutory exemptions, the application of the Personal Savings Allowance (PSA), and the mechanics of gross payment.
Tax-Free National Savings & Investments (NS&I) Products
Several NS&I products benefit from explicit statutory exemptions, shielding the returns from both Capital Gains Tax (CGT) and Income Tax.
1. Premium Bonds and Capital Gains Tax
Premium Bonds do not generate regular interest; instead, they enter holders into a monthly prize draw. The legislation definitively exempts these winnings from Capital Gains Tax. Section 51 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) classifies these returns as winnings from games with prizes, removing them entirely from the CGT regime.
“It is hereby declared that winnings from betting, including pool betting, or lotteries or games with prizes are not chargeable gains, and no chargeable gain or allowable loss shall accrue on the disposal of rights to winnings obtained by participating in any pool betting or lottery or game with prizes.”
Consequently, clients do not need to declare Premium Bond prizes on their Self-Assessment tax returns.
2. NS&I Savings Certificates
Income derived from authorised NS&I savings certificates enjoys a complete exemption from UK income tax. Section 692 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) provides the statutory basis for this relief.
“No liability to income tax arises in respect of income from authorised savings certificates.”
This includes savings certificates issued under the National Loans Act 1968 and the National Debt Act 1958.
Taxable NS&I Products and Gross Payment
Not all National Savings & Investments (NS&I) products are tax-free. Products such as Direct Saver, Income Bonds, and the Investment Account generate taxable savings income.
Crucially, NS&I pays this interest gross. Section 881 of the Income Tax Act 2007 (ITA 2007) removes the statutory duty for the National Savings Bank to deduct income tax at source.
“The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on deposits with the National Savings Bank.”
Because NS&I does not withhold tax, clients who exceed their available allowances must declare this income and pay the applicable tax through Self-Assessment or via a PAYE coding adjustment.
2026/27 Tax Rates and Statutory Allowances
For the 2026/27 tax year, section 3 of the Finance Act 2026 sets the savings rates of income tax.
| Tax Band | 2026/27 Savings Rate |
|---|---|
| Basic Rate | 20% |
| Higher Rate | 40% |
| Additional Rate | 45% |
Before applying these rates, taxpayers can utilise two primary allowances to shelter their taxable NS&I interest.
1. The Personal Savings Allowance (PSA)
Section 12B of ITA 2007 establishes the Personal Savings Allowance (PSA), which provides a nil rate band for savings income based on the taxpayer’s marginal rate.
- Basic rate taxpayers: Receive a £1,000 allowance.
- Higher rate taxpayers: Receive a £500 allowance.
- Additional rate taxpayers: Receive a nil (£0) allowance.
2. The Starting Rate for Savings
Low-income savers can also benefit from the starting rate for savings. Section 9 of the Finance Act 2026 confirms that the government has frozen the starting rate limit for savings at £5,000 for the tax years 2026/27 through to 2030/31. If a taxpayer’s non-savings income falls below their personal allowance plus £5,000, they can earn up to £5,000 in taxable NS&I interest tax-free.
Looking Ahead: 2027/28 Rate Increases
While the 2026/27 rates remain steady, advisors must plan for forthcoming increases. Section 5 of the Finance Act 2026 dictates that from April 2027 (the 2027/28 tax year), the savings rates will increase to 22% (basic), 42% (higher), and 47% (additional). This makes maximising tax-free NS&I holdings even more critical in future years.
Consider reviewing the specific eligibility criteria for NS&I Green Savings Bonds to determine if they align with the client’s investment time horizon and tax allowance availability.
Join 5,000+ businesses comparing today