Tax on Savings Interest From April 2027: The New 22%, 42% and 47% Rates

From 6 April 2027, savings interest gets its own set of income tax rates that are 2 percentage points above the rates on wages and pensions: 22% instead of 20%, 42% instead of 40% and 47% instead of 45%. Nothing changes for the 2026/27 tax year, which still taxes interest at 20%, 40% and 45%, and the allowances that make most interest tax-free — the Personal Savings Allowance, the starting rate for savings and ISAs — are staying.

In cash terms the change is modest for most savers and material only for people holding large balances outside an ISA. The arithmetic below shows exactly where the extra cost lands.

Key points

• The new savings rates of 22%, 42% and 47% apply from the 2027/28 tax year onwards, not to interest you earn in 2026/27.
• The Personal Savings Allowance stays at £1,000 for basic-rate taxpayers, £500 for higher-rate and nil for additional-rate, and the £5,000 starting rate for savings band stays at 0%.
• Interest inside an ISA remains completely outside income tax, before and after April 2027.
• The higher rates apply to savers in Scotland too, because savings income is taxed at UK-wide rates rather than Scottish rates.
• From April 2027 the amount you can put into a cash ISA is expected to be capped at £12,000 a year for under-65s, within the £20,000 overall ISA allowance.

What's changing

The government has been moving tax on "unearned" income — dividends, savings and property profits — above the rates charged on earnings. Dividends went first: for 2026/27 the ordinary rate is 10.75% and the upper rate 35.75%, with the additional rate at 39.35%. Savings interest and property income follow a year later, with a 2 percentage point increase from 6 April 2027.

Two things are not changing:

• The allowances. The Personal Savings Allowance and the starting rate for savings band survive in their current form, so the same slice of interest stays tax-free.
• The bands. Which rate you pay still depends on where your total income sits relative to the basic-rate limit (£37,700 of taxable income) and the higher-rate limit (£125,140). Those thresholds remain frozen, which is why more savers keep drifting into the 42% column.

Scotland

Scottish income tax rates apply only to non-savings, non-dividend income such as wages, self-employment profits and pensions. Interest is taxed at the UK rates, so a Scottish saver will pay 22%, 42% or 47% from April 2027 in the same way as a saver in Cardiff or Coventry. The band you fall into is worked out using the UK basic and higher-rate limits, even though your salary is taxed on the Scottish bands.

The new rates in full

Remember the order of taxation: earnings and pensions are taxed first, then savings interest, then dividends. That means interest sits on top of your other income, and a large interest payment can push part of itself from the 22% column into the 42% one.

Worked examples

1. Basic-rate employee with £2,000 of interest

Salary £35,000, interest £2,000. The £1,000 Personal Savings Allowance covers half the interest, leaving £1,000 taxable.

• 2026/27: £1,000 × 20% = £200
• 2027/28: £1,000 × 22% = £220
• Extra cost: £20

2. Higher-rate earner with £4,000 of interest

Salary £70,000, interest £4,000. The Personal Savings Allowance is £500, so £3,500 is taxable at the higher rate.

• 2026/27: £3,500 × 40% = £1,400
• 2027/28: £3,500 × 42% = £1,470
• Extra cost: £70

3. Retired saver with a small pension and a big deposit

State and private pension of £12,570 exactly, plus £8,000 of interest. The Personal Allowance is used up by the pension, so the full £5,000 starting rate band is available, then the £1,000 Personal Savings Allowance.

• £5,000 at the 0% starting rate = £0
• £1,000 covered by the Personal Savings Allowance = £0
• Remaining £2,000 taxable: £400 at 20% in 2026/27, £440 at 22% from 2027/28
• Extra cost: £40

4. Additional-rate taxpayer

Total income comfortably above £125,140, with £5,000 of interest. There is no Personal Savings Allowance at this level, so all £5,000 is taxable.

• 2026/27: £5,000 × 45% = £2,250
• 2027/28: £5,000 × 47% = £2,350
• Extra cost: £100

The pattern is simple: the increase costs £20 for every £1,000 of taxable interest, whatever band you are in. The bigger driver of savings tax bills is still how much interest falls outside the allowances, not the 2 point rate rise. You can test your own numbers in the savings interest tax calculator.

Allowances that still protect you

Before you assume the new rates touch you at all, check the three layers that come first.

The Personal Allowance

The first £12,570 of total income is tax-free. If your pension and other income are below that, part of your interest simply falls inside the Personal Allowance and is taxed at nothing.

The starting rate for savings

A £5,000 band of savings income is taxed at 0%, but it shrinks by £1 for every £1 of non-savings income above the Personal Allowance. Once your wages or pension reach £17,570 the band has gone entirely. It is the most valuable and most overlooked protection for people with modest pensions and substantial cash.

The Personal Savings Allowance

£1,000 of interest is tax-free for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers. At a 4% rate of return, £1,000 of interest is roughly £25,000 of savings — so a basic-rate taxpayer with less than that in an ordinary account will usually still pay nothing after April 2027.

Banks and building societies report the interest they pay to HMRC automatically. For employees and pensioners, tax on interest is usually collected by adjusting your tax code rather than through a tax return, which means an estimate based on last year's interest can easily be wrong. Our savings tax check shows whether the amount being collected matches what you actually owe, and the full rules for this tax year are in the guide to tax on savings interest in 2026/27.

Moving savings into ISAs first

Interest earned inside an ISA is free of income tax at any rate, so the 22%, 42% and 47% rates never apply to it. That makes the ISA allowance more valuable from April 2027 than it is today — and there is a second reason to think about timing.

The overall ISA allowance stays at £20,000 a year, but from April 2027 the amount that can go into cash is expected to be capped at £12,000 a year for savers under 65, with the balance available only for stocks and shares ISAs. Savers aged 65 and over are expected to keep the full £20,000 in cash. That makes 2026/27 the last tax year in which someone under 65 can put a full £20,000 into a cash ISA.

Two practical points worth understanding:

• Allowances do not carry forward. An unused 2026/27 ISA allowance is lost after 5 April 2027.
• Moving money between providers as a formal ISA transfer does not use up a new year's allowance; withdrawing and re-depositing usually does, unless the account is a flexible ISA.

Equally, an ISA only saves tax you would otherwise have paid. If all your interest already sits inside the Personal Savings Allowance and the starting rate band, the 2027 rates change nothing for you.

What to do next

Work out how much of your interest is actually taxable, then apply 22%, 42% or 47% to that slice to see the real effect of the change. The savings interest tax calculator does the band and allowance arithmetic for you, and the savings tax check flags whether your tax code is collecting the right amount in the meantime.