Savings interest can often be received tax-free, but the amount depends on your total taxable income and the interaction between several different tax allowances.
For the 2026/27 tax year, individuals benefit from:
- the Personal Allowance of £12,570;
- the Starting Rate for Savings of up to £5,000 (taxed at 0%); and
- where applicable, the Personal Savings Allowance (PSA).
For individuals with little or no other income, this can create a substantial tax-free band for savings interest.
Where non-savings income (such as salary, pension, rental profits or self-employment income) does not exceed £12,570, the full £5,000 starting rate for savings may be available. Combined with the Personal Allowance, this means an individual could receive up to £17,570 of income before tax applies, subject to the composition of that income.
In addition, the Personal Savings Allowance provides further tax-free interest:
- Basic rate taxpayers: up to £1,000 of savings interest tax-free;
- Higher rate taxpayers: up to £500 tax-free; and
- Additional rate taxpayers: no Personal Savings Allowance is available.
As a result, a basic-rate taxpayer with minimal non-savings income may be able to receive up to £18,570 of savings income without paying Income Tax.
It is important to note that eligibility for the Starting Rate for Savings reduces once non-savings income exceeds the Personal Allowance. The £5,000 allowance is reduced by £1 for every £1 that non-savings income exceeds £12,570, and is fully lost once non-savings income reaches £17,570.
Certain forms of investment income remain entirely outside these rules. For example:
- interest earned within an ISA; and
- winnings from Premium Bonds,
remain exempt from Income Tax.
Banks and building societies now pay interest gross, meaning tax is no longer deducted automatically at source. Where tax becomes payable on savings income, HMRC may collect this through Self Assessment or by adjusting a taxpayer’s PAYE code.
If too much tax has been paid on savings income, a repayment claim can usually be submitted to HMRC. In most cases, claims can be backdated for up to four tax years. For example, claims relating to the 2022/23 tax year must generally be submitted by 5 April 2027.
