Tax on savings interest

UK savers can benefit from a certain amount of tax-free interest on their savings thanks to the personal savings allowance (PSA). On this page, you’ll find out if savings account interest is taxable, how much you might be taxed on your savings, what the personal savings allowance is, all about tax-free savings accounts and how to pay tax on your savings.

Tax on savings accountsTax on savings accountsTax on savings accounts
The rundown
  • Tax on savings interest: Paying tax on savings depends on how much interest you earn and your tax bracket 
  • Personal allowance: The personal savings allowance allows you to earn tax-free interest on your savings up to a certain limit
  • Tax-free savings: ISAs are an option if you’re looking for tax-free savings

Do you pay tax on savings interest?

Whether you pay tax on your savings depends on how much interest you receive and which income tax bracket you fall into.

Low-income earners or non-taxpayers can benefit from the 0% tax ‘starting rate’ on savings of up to £5,000. This means you can earn up to £5,000 in interest before paying tax. This is reduced for every £1 you earn over your personal income tax allowance of £12,570 per year (2022/23). For example, if you earn £13,500, then your 0% starting rate for savings would be £4,070

Basic rate taxpayers can earn up to £1,000 per year tax-free. For higher rate (40%) taxpayers, it’s £500. In reality, less than 5% of UK savers will pay interest on the savings they earn. To put this into context, if you’re a basic rate taxpayer with a competitive easy access savings account paying 0.61% AER, you would currently need just over £150,000 in savings before you had to start paying tax.

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What is the personal savings allowance?

The personal savings allowance was first introduced on 6th April, 2016. It allows savers to earn tax-free interest on their savings up to a certain limit. Every basic rate taxpayer in the UK has a personal savings allowance of £1,000. This means that the first £1,000 you earn from savings interest a year is tax-free. If you exceed your £1,000 allowance, then you will be taxed 20% on any interest you earn after that. 

Higher-rate taxpayers can earn up to £500 tax-free, and anything you earn over that will be taxed at 40%. Additional-rate taxpayers have no savings allowance, which means you pay 45% tax on all your savings interest.

How much can I save before I go over my personal savings allowance?

This table shows how much you can earn before paying tax on your savings interest:

Tax Rate Annual personal income, not from savings Tax-free interest on savings
No tax £0 to £12,570 Earn a maximum of £5,000 tax-free with the 0% starting rate for savings
Basic rate taxpayer with a low income £12,571 to £17,570 Earn up to £5,000 tax-free with the 0% starting rate of savings and up to a further £1,000 tax-free with your PSA
Basic rate taxpayer £17,571 to £50,270 Earn up to £1,000 interest tax-free with your PSA
Higher rate taxpayer £50,271 to £150,000 Earn up to £500 interest tax-free with your PSA
Additional rate taxpayer Over £150,000 Not eligible for any savings interest allowance

Are there any tax-free savings accounts?

Individual Savings Accounts (ISAs) are an option if you’re looking for tax-free savings and investments. The annual amount you can save in your ISAs is £20,000, and you won’t pay any tax. This is the total amount you can deposit in one year, regardless of how many ISAs you hold. There are several different types of ISA to consider, including:

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Lifetime ISA
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What if I earn interest other than from my savings accounts?

Your personal savings allowance is not only applicable to your savings accounts. If you own corporate bonds or other financial products that also pay interest, this interest will be included in your total annual PSA. The same applies if you invest in a trust or a similar fund that pays interest on dividends.

How do I pay tax on my savings interest?

If you’re in the estimated 5% of people who need to pay tax on their savings interest, you may be wondering how to do this.

Firstly, it’s important to note that any interest you earn from your savings will be paid to you in full by your bank or building society. If you’re employed or receive a pension, HMRC will claim back the tax owed by adjusting your tax code. If you’re self-employed, you’ll need to report any interest earned on your annual Self Assessment tax return.

How to claim back tax on savings interest

If you think you’ve paid too much tax on your savings, for example because your savings interest has fallen below the allowance, you can claim a refund.

You can either do this through your Self Assessment tax return (if you’re required to submit one) or by completing form R40. You must do this within four years of the end of the relevant tax year. It usually takes around six weeks for the tax to be refunded.

Apply for savings accounts online

If you want to quickly and easily open savings accounts online, consider using our marketplace. 

Some of the most popular types of savings accounts we offer include fixed rate bonds, easy access accounts and notice accounts.

  • Fixed rate bonds – these usually offer the most competitive rates of all account types and are a good option for long-term savings goals. Your money is locked in for a set period – typically between one and five years – and you won’t be able to access your cash until the agreed end date.
  • Easy access savings accounts – easy access savings accounts are ideal if you’re looking for more flexibility as you can withdraw money whenever you like. However, they tend to pay lower rates of interest.
  • Notice accounts – these types of accounts combine the benefits of both fixed rate bonds and easy access accounts. They give you a degree of flexibility in that you only need to give a relatively short notice period to access your savings but they also pay competitive rates of interest.

To open a high interest savings account, simply register for a Raisin UK Account (it’s free) and choose from a range of offers from our partner banks. Once your application is approved you can then sit back and watch your savings grow.

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