Do you pay tax on savings interest? 2026/27 allowances

The short answer: only if your interest is more than your allowances. Most people can earn £1,000 of interest a year tax-free (£500 if you pay 40% tax), and interest in an ISA is always tax-free. At 4.5%, a basic-rate taxpayer can keep about £22,222 outside an ISA before paying anything. From April 2027, tax on interest above the allowance goes up by 4 percentage points.

The three allowances

The starting rate shrinks by £1 for every £1 of other income above £12,570, so it is gone at £17,570. Someone with no other income can earn £18,570 of interest tax-free: £12,570 Personal Allowance, £5,000 starting rate and £1,000 savings allowance.

How much you can save before paying tax

Your tax band includes your interest. If interest pushes your income over £50,270, your allowance drops to £500.

Tax rates on interest above the allowance

These rates apply across the UK, including Scotland, because savings income uses UK bands.

A worked example

Someone earning £40,000 has £30,000 in an easy-access account at 4.5%. They earn £1,350 of interest:

• First £1,000: tax-free under the Personal Savings Allowance.
• Remaining £350 at 20%: £70 of tax in 2026/27.
• The same interest from April 2027, at 24%: £84.

Moving £20,000 of it into a cash ISA would make all the remaining interest tax-free.

How the tax is collected

Banks tell HMRC how much interest you earn. If you are employed or get a pension, HMRC normally changes your tax code to collect what is due, often a year later, based on the previous year's interest. If you file Self Assessment, you include interest on your return. If your interest is over £10,000, you must register for Self Assessment. Check your code if you notice it change; see tax codes explained.

Ways to pay less tax on savings

• Use your ISA allowance: £20,000 a year into cash or stocks and shares ISAs, and the cash ISA limit is staying at £20,000.
• Premium Bonds: prizes are tax-free, though the expected return is lower than the best accounts.
• Hold savings in the lower earner's name if you are married and trust each other, so more falls within their allowance.
• Pay into a pension: contributions can lower your band, and higher-rate taxpayers dropping to basic rate get £1,000 of allowance instead of £500.
• Watch fixed-term bonds: interest paid all at once at maturity counts in one tax year.

See what compound interest is and how much to keep in an emergency fund.

Joint accounts and couples

Interest on a joint account is normally split equally between the account holders, so each person counts half against their own allowances. Each partner has their own Personal Savings Allowance and starting rate for savings, so a couple where one pays basic-rate tax and the other little or none can often earn more interest tax-free by keeping more savings in the lower earner's name. Moving money to a spouse or civil partner is free of tax, but it must genuinely become theirs.

Children's savings

• Children have their own allowances, including the personal allowance, so most children pay no tax on savings.
• Money from parents is different: if savings a parent gives a child earn more than £100 a year, all the interest is taxed as the parent's income.
• The £100 rule doesn't apply to money from grandparents and others, or to a Junior ISA.

What counts as savings interest

Bank and building society interest, interest from bonds and gilts, peer-to-peer lending interest, and interest distributions from bond funds all count. Premium Bond prizes and ISA interest do not. Dividends from shares have their own separate allowance.

Related reading: the Autumn Budget 2026 explained.

This is general information, not financial advice. Tax depends on your total income.