Paying tax on savings: what you need to know
Published: 29 May 2026
Saving money is a smart move, but do you know how tax works on savings interest? First up, some good news: savers in the UK may not have to pay any tax on their savings thanks to allowances such as the Personal Savings Allowance (PSA) and tax-free accounts like ISAs.
But it’s important to understand when tax might apply, how His Majesty’s Revenue and Customs (HMRC) – the UK’s tax authority (‘the taxman’) – treats savings income and what to do if you owe tax. Our guide breaks it down for you.
What counts as ‘savings tax’?
Savings tax refers to the income tax charged on interest you earn from accounts such as (we have included a link to the accounts we offer):
- Easy access savings accounts
- Fixed rate bonds
- Regular saver accounts
- Current accounts that pay interest
- Some National Savings & Investments (NS&I) products
You don’t pay tax on the money you save – just the interest it earns.
HMRC tax rules on savings
HMRC treats savings interest as a form of income, similar to earnings from a job or pension payments. Key rules currently include:
The Personal Savings Allowance (PSA)
You may also get up to £1,000 of interest and not have to pay tax on it:
- Basic rate taxpayers can earn £1,000 of interest
- Higher rate taxpayers can earn £500
- Additional rate taxpayers don’t get any PSA
Starting rate for savings
If your other income (e.g. wages or pension) is below £17,570, you may get up to £5,000 of savings interest tax-free. This is known as the starting rate for savings.
Individual Savings Accounts (ISAs)
ISAs are tax wrappers for savings and investments, free from tax. In the 2026/2027 tax year, you can save up to £20,000 in a range of different ISAs. However, from the 2027/2028 tax year, this will change: the overall ISA limit will remain at £20,000, but savers under 65 will only be able to save up to £12,000 in cash ISAs. Those aged 65 and over aren’t affected.
Banks and building societies report interest to HMRC automatically, so you usually don’t need to do anything unless you exceed your allowances.
Do you pay tax on savings?
You only pay tax if your total taxable interest is more than your available allowances (your PSA plus any starting rate for savings).
People have often not paid tax on interest because interest rates were low for many years. However, with higher interest rates more recently, some savers may start to exceed their PSA.
Do you have to pay tax on savings?
You must pay tax if:
- Your interest is more than your PSA
- You’re an additional rate taxpayer
How do you pay tax on savings?
This depends on your circumstances.
If you’re employed or receive a pension
HMRC usually adjusts your tax code to collect the tax automatically through Pay as You Earn (PAYE), a system used by HMRC to collect tax and other deductions from wages and pensions.
If you complete a self-assessment tax return
You report your interest on the form, and HMRC calculates the tax due.
Currently, you need to register for self-assessment if your income from savings and investments is over £10,000.
If you don’t normally file a tax return
HMRC may send you a ‘Simple Assessment’ or adjust your tax code.
When do you pay tax on savings?
Tax is normally collected:
- Automatically during the tax year via PAYE (if HMRC adjusts your tax code), or
- After you file your self-assessment (if you’re self-employed or you’re required to file one).
How is tax paid on savings?
HMRC uses one of three methods:
Tax code adjustment
Your employer or pension provider deducts the tax from your income.
Self-assessment
You pay the tax directly to HMRC after submitting your return.
Simple assessment
HMRC sends you a bill if they believe you owe tax, but you don’t file returns.
Do you pay tax on interest on savings?
Yes – interest is taxable income unless:
- It’s earned in an ISA
- It falls within your PSA
- You qualify for the starting rate for savings
- It’s from certain NS&I products (e.g. Premium Bonds prizes are tax-free)
If your interest is more than your allowances, the excess is taxed at your income tax rate.
Paying tax on savings interest can seem complicated, but the system is designed so that most people don’t need to do anything. As long as you understand your allowances and keep an eye on how much interest you earn, you’ll know whether tax applies.
The tax treatment depends on the individual circumstances of each customer and may be subject to change.
This article is not advice, and you should seek independent financial or legal advice if needed.
