Tax on savings interest: the three allowances in 2026/27
Figures checked . UK rules and rates change, so check the official sources below before you act.
Most people can earn some savings interest without paying tax. This guide explains the Personal Allowance, the starting rate for savings and the Personal Savings Allowance, and how any tax due is collected by HMRC.
Who this guide is for
This guide is general information for UK taxpayers who earn interest from bank, building society or credit union accounts. It does not cover interest on foreign savings or children's accounts, which have different rules. It is not advice for your own situation.
The figures below are for the 2026/27 tax year (6 April 2026 to 5 April 2027) and were checked on GOV.UK on 7 October 2026.
Interest in ISAs is treated differently
Interest earned in an Individual Savings Account (ISA) and in some National Savings and Investments products is not usually taxed. The rest of this guide is about interest from ordinary savings accounts, where tax can apply.
The three allowances
GOV.UK describes three allowances that can reduce or remove tax on savings interest. They work each tax year, and how much you get depends on your other income.
- Personal Allowance: £12,570 for 2026/27. If wages, pension or other income do not use all of it, HMRC can apply what is left to your savings interest.
- Starting rate for savings: up to £5,000 of interest can be tax free if your other taxable income (not counting savings interest or dividends) is less than £17,570.
- Personal Savings Allowance: the amount depends on your Income Tax band, as shown below.
How the starting rate for savings works
The starting rate shrinks as your other income grows. Every £1 of other income above your Personal Allowance reduces it by £1. GOV.UK gives this example: someone with £16,000 of wages has £3,430 above the Personal Allowance, so the starting rate left is £1,570 (£5,000 minus £3,430). They would not pay tax on £200 of interest.
How the Personal Savings Allowance works
To work out your tax band for this allowance, GOV.UK says to add the interest you have earned to your other income. If your interest is more than your allowance, you usually pay Income Tax on the amount above it, at your usual rate.
GOV.UK gives an example. A basic rate taxpayer who earned £1,300 of interest has a £1,000 allowance. The first £1,000 is not taxed. The remaining £300 is taxed at 20%, so £60 is due.
Joint accounts and several accounts
For a joint account, HMRC splits the interest equally between the account holders. HMRC can be contacted if the split should be different. If you have more than one savings account, HMRC adds the interest from all of them together.
How any tax is collected
Banks and building societies tell HMRC after 5 April how much interest they paid you in the previous tax year.
- If your interest is £10,000 or less and you are employed or get a pension, HMRC will usually collect any tax through your tax code. Tax calculations are usually sent between June and the following March after the tax year ends.
- If your tax code cannot be changed, HMRC may send a Simple Assessment letter that explains how much you owe and how to pay.
- If you already send a Self Assessment tax return, interest is reported there.
- If your interest is more than £10,000, you need to tell HMRC on a Self Assessment tax return.
GOV.UK says that if you have tax to pay on savings interest and have no letter by 31 March of the following tax year, you must contact HMRC.
If the estimate looks wrong
HMRC may put an estimate of your savings interest into your tax code, based on the previous year. You can see it in your Personal Tax Account. If it looks wrong, HMRC can be asked to update it. Tax paid for an earlier year can be claimed back if your total income was below your Personal Allowance, within 4 years of the end of that tax year.
Differences across the UK
GOV.UK notes that Income Tax bands for earnings are different in Scotland, which has its own set of bands. Because your band affects your Personal Savings Allowance, it can be worth checking the official pages for where you live.
Check before you act
Rules and rates change from year to year. It is worth confirming the figures on the official pages linked below before relying on anything here. Free help is available from MoneyHelper and Citizens Advice.
Sources
For information only. See our disclaimer and editorial standards. Spotted an error? Tell us.
