Will I Pay Tax on My Savings Interest in 2026/27?

The Personal Savings Allowance

Most people can earn some savings interest tax-free through the Personal Savings Allowance (PSA). The amount depends on your income tax band.

Interest from ISAs does not count towards the PSA — it is always tax-free — so the PSA only matters for interest earned outside an ISA.

• Basic-rate (20%) taxpayers: £1,000 of savings interest tax-free.
• Higher-rate (40%) taxpayers: £500 tax-free.
• Additional-rate (45%) taxpayers: £0 — no allowance.

The starting rate for savings

On top of the PSA, there is a separate 'starting rate for savings' worth up to £5,000 of interest at 0% tax. It is aimed at people with low non-savings income.

The £5,000 starting rate reduces by £1 for every £1 of other income above your Personal Allowance, so it mainly helps those with small wages or pensions and larger savings.

Why more savers are being caught

Higher interest rates mean a given balance generates more interest, so it is easier to exceed a £1,000 or £500 allowance than it was a few years ago. Frozen income tax thresholds also pull more people into the higher-rate band, where the PSA halves to £500.

From April 2027, the tax rates applied to savings interest above your allowance are also due to rise by two percentage points across the bands. That makes it more worthwhile to shelter interest inside an ISA.

How HMRC collects the tax

Banks and building societies report the interest they pay you to HMRC. If you are employed or get a pension, HMRC usually collects any tax due by adjusting your tax code — so you pay it through PAYE rather than a separate bill.

That is why a chunk of savings interest can quietly change your tax code and reduce your take-home pay. If you complete Self Assessment, you declare the interest there instead.

How to work out if you'll be taxed

Add up the interest across all your non-ISA savings accounts for the tax year, then compare it with your PSA. Anything above the allowance is taxed at your marginal rate.

Our Savings Interest Tax Code Calculator checks whether your interest is likely to exceed your allowance and prompt HMRC to change your tax code.

How to reduce savings tax

The simplest fix is to move savings into a cash ISA, where interest is always tax-free and does not use your PSA. Couples can also balance savings between them to use two allowances.

Note the cash ISA limit for under-65s is being cut to £12,000 from April 2027, so using your full allowance before then can help shelter more interest.

• Use ISAs to keep interest tax-free.
• Split savings between partners to use both allowances.
• Premium Bonds prizes are tax-free and do not count towards the PSA.