Savings Interest Tax Calculator

Work out whether you owe tax on your savings interest, and how much, after your Personal Savings Allowance and the starting rate for savings.

Tax on savings interest in 2026/27, explained plainly

If you have money in a bank or building society account and it pays you interest, you may owe tax on savings interest, and most people are surprised to find out they might. The good news is that the rules are more generous than they look at first glance. Between the Personal Savings Allowance and, for some people, the starting rate for savings, a lot of savers pay nothing at all. The bad news is that with higher interest rates over the last few years and allowances that have been frozen, more ordinary savers are now being caught for the first time.

This page sits alongside the Savings Interest Tax Calculator, which does the sums for you. Below, I want to walk you through how it actually works, in the same way I would explain it to a client sitting across the desk from me. By the end you should know whether you owe anything, how much, and how HMRC will collect it.

What counts as savings interest

Savings interest is the money your savings earn. It includes interest from bank and building society accounts, credit union accounts, most National Savings and Investments products, peer-to-peer lending, and the interest element of certain investments. It also includes interest from corporate bonds and government gilts. What it does not include is interest earned inside an ISA, which is tax-free and sits outside all of this entirely.

Crucially, savings interest is treated as a specific kind of income with its own set of allowances. It is not the same as dividend income, which has its own rules. If you also receive dividends, take a look at our dividend tax calculator, because the two are taxed separately and it is easy to muddle them.

Who this affects

You might need to think about tax on savings interest if any of the following sounds like you:

• You have a decent pot in an ordinary (non-ISA) savings account and rates have pushed your interest above a few hundred pounds a year.
• You are a higher-rate taxpayer, because your tax-free allowance for savings is smaller.
• You are retired and living mostly off savings interest, where the rules can actually be very kind to you.
• You have sold a property or business and are temporarily holding a large cash sum.

If your only worry is whether your overall income tips you into a higher band, it helps to remember that savings interest stacks on top of everything else you earn, so your wages and pension come first.

The Personal Savings Allowance for 2026/27

The Personal Savings Allowance (PSA) is the headline relief. It lets you earn a set amount of savings interest each year with no tax to pay. How much you get depends on your highest tax band:

So a basic-rate taxpayer can earn up to £1,000 of interest tax-free, a higher-rate taxpayer £500, and an additional-rate taxpayer gets nothing at all. Note the cliff edge: if extra income nudges you from basic into higher rate, your allowance halves from £1,000 to £500 at the same time. These figures apply across the UK, because savings income is taxed at UK-wide rates even though Scotland sets its own rates for earned income.

The starting rate for savings, the relief most people miss

This is the one I get the most questions about, and the one that quietly saves a lot of retired people a small fortune. On top of the PSA, there is a separate £5,000 starting rate for savings, taxed at 0%. It is designed for people whose income comes mainly from savings rather than wages or pension.

Here is the catch: the £5,000 band tapers away as your non-savings income (wages, pension, rental profit, self-employment) rises above your Personal Allowance. For every £1 of non-savings income above the £12,570 Personal Allowance, you lose £1 of the starting rate band. So once your non-savings income reaches £17,570, the starting rate for savings is gone entirely.

To put it simply: if your wages or pension are at or below £12,570, you could potentially earn £5,000 of savings interest under the starting rate, plus £1,000 under the PSA, all tax-free. That is up to £6,000 of interest with no tax. This is why someone living off a small pension and a large savings pot can often pay no tax on savings interest at all.

How savings interest stacks on top of your other income

The order matters. HMRC works out your tax by stacking income in a set sequence: non-savings income first (earnings, pension, rental), then savings income, then dividends on top. Savings interest sits in the middle of that stack, which is why your other income decides how much of your interest falls into the 0% bands and which tax rate the rest is charged at.

If some of your interest is taxable beyond the allowances, it is taxed at your marginal rate: 20% for basic-rate, 40% for higher-rate, and 45% for additional-rate. There is no separate, lower rate for savings beyond the allowances, so the interest is simply added to your income and taxed at whatever band it lands in.

ISAs are completely tax-free

The simplest way to keep interest out of the tax net is an ISA. Interest earned inside a cash ISA is tax-free, full stop, and it does not count towards your PSA or starting rate. For 2026/27 the ISA allowance is £20,000 across all your ISAs combined. If you are regularly going over your PSA, moving savings into a cash ISA is often the cleanest fix. Our ISA calculator and the ISA allowance 2026/27 guide walk through the limits and how to use them.

Worked example one: Sarah, a basic-rate saver

Sarah earns £35,000 a year as a teacher, so she is a basic-rate taxpayer. She has £40,000 in an ordinary easy-access account paying 4%, giving her £1,600 of interest this year.

• Her Personal Savings Allowance is £1,000, so the first £1,000 of interest is tax-free.
• Her income is well above £17,570, so she gets no starting rate for savings.
• The remaining £600 is taxed at 20%, which is £120 of tax.

Sarah owes £120. She does not need to file a tax return for this. HMRC will usually adjust her tax code to collect it, which I will explain shortly. If Sarah had held that £40,000 in a cash ISA instead, she would owe nothing.

Worked example two: David, retired and living off savings

David is retired. He receives a State Pension and a small private pension totalling £14,000 a year, and he has built up £120,000 in savings paying 4.2%, which is £5,040 of interest.

• His non-savings income is £14,000. That is £1,430 above the £12,570 Personal Allowance, so his £5,000 starting rate band is reduced by £1,430 to £3,570.
• The first £3,570 of his interest is covered by the remaining starting rate band at 0%.
• His £1,000 Personal Savings Allowance covers the next £1,000 at 0%.
• That leaves £470 of interest taxable at 20%, which is £94 of tax.

David pays just £94 on more than £5,000 of interest, because the starting rate works so heavily in his favour. Many people in David's position assume they owe far more and are pleasantly surprised.

How HMRC collects the tax

You do not normally pay this tax separately. Banks and building societies report the interest they pay you to HMRC after the tax year ends. HMRC then works out whether you owe anything. There are two main ways it gets collected:

• Through your tax code. If you are employed or receive a pension, HMRC usually adjusts your tax code so the tax is taken gradually from your wages or pension over the following year. You will see a change on your coding notice. Our tax code calculator and the tax codes explained guide help you check the figures.
• Through Self Assessment. If you already complete a tax return, or if your untaxed income is large, you declare the interest there and pay any tax due. Not sure if you need to file? Try do I need to file a tax return.

One honest caveat: tax codes are an estimate based on last year's figures. If your interest jumps because rates rose or you moved a lump sum into savings, the code can lag behind reality, and you may get a small bill or refund to square things up. It is worth checking your figures rather than assuming the code is right.

Why frozen allowances are catching more savers

The Personal Savings Allowance has not changed since it was introduced. £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers have stayed the same while interest rates climbed. At the same time, frozen income tax thresholds mean more people are being dragged into the higher-rate band through fiscal drag, which halves their PSA from £1,000 to £500 just as their interest is growing.

The result is that savers who never gave this a thought are now receiving coding notices or letters. If a letter from HMRC has landed and you are not sure what it means, our HMRC letter decoder can help.

Common mistakes people make

• Forgetting joint accounts are split. Interest on a joint account is normally treated as belonging half to each holder, so each person uses their own allowance against their half.
• Assuming ISA interest counts. It does not. ISA interest is fully tax-free and never uses up your PSA.
• Missing the higher-rate cliff edge. A pay rise or a bonus can push you into higher rate and halve your PSA at the same time.
• Overlooking the starting rate. People with low earned income often pay tax they did not owe because they did not claim the starting rate. Use the Personal Savings Allowance calculator to check.
• Ignoring fixed-rate bonds. Interest is generally taxed in the year you can access it, which for some multi-year bonds can bunch a lot of interest into one tax year.

How to use the Savings Interest Tax Calculator

The tool is designed to take the guesswork out of all this. Enter your annual savings interest, your other income (wages, pension, rental and so on), and the calculator will apply your Personal Savings Allowance, work out any starting rate for savings you qualify for, and tell you how much tax you owe and at what rate. It is the quickest way to see your real position for 2026/27 before any coding notice arrives.

If you want to model your wider tax picture, run your salary and pension through the take-home pay calculator as well, since your other income decides how much of the starting rate band you keep.

Your next steps

Start by running your numbers through the calculator above. If you are paying tax on savings interest you would rather not, the most reliable fix is to use your ISA allowance before the tax year ends. Check your tax code on your latest coding notice so you are not paying too much or too little. And if your affairs are more involved, perhaps several accounts, dividends and rental income all at once, it can be worth a short chat with an accountant.

One last reassurance: this is a tax HMRC mostly works out for you. You rarely need to do anything dramatic, and the penalties people fear are for missing Self Assessment deadlines, not for honestly under-estimating interest. If you do need to file, our Self Assessment deadlines guide keeps you on the right side of the dates.

A quick disclaimer: the figures here are for the 2026/27 tax year and are general guidance, not personal advice. Everyone's situation is different, so please check your own position with HM Revenue and Customs or a qualified accountant before making decisions. You can also tell HMRC about untaxed interest and read the official rules at GOV.UK on tax-free interest on savings, and for general tax information GOV.UK is the definitive source.

Who should use this calculator

Most people pay no tax on savings interest, and this shows exactly where your position sits. Three separate reliefs stack up before any tax is due: unused Personal Allowance, the starting rate for savings of up to £5,000 for those with low earned income, and then the Personal Savings Allowance.

The PSA is £1,000 for basic-rate taxpayers, £500 for higher-rate, and nil for additional-rate. With higher interest rates, far more savers now exceed it than did a few years ago — and HMRC usually collects the tax by adjusting your tax code rather than sending a bill, which is why it often appears as a mysterious code change.

What this calculator assumes

• Interest is taxed only after unused Personal Allowance, the starting rate for savings and the Personal Savings Allowance have been applied in that order.
• The starting rate for savings reduces as non-savings income rises above the Personal Allowance, and disappears entirely at a modest level of earnings.
• The PSA depends on your tax band: £1,000 basic, £500 higher, nil additional.
• Interest is taxable in the year it is made available, not when withdrawn.

Limitations — what it does not cover

• ISA interest, which is entirely tax-free and outside all of this.
• Fixed-term bonds paying interest at maturity, which can bunch several years’ interest into one tax year and push you over the PSA.
• Joint accounts, where interest is normally split equally.
• Children’s accounts, and the rule taxing parental gifts producing more than £100 of interest on the parent.
• How the tax is collected — usually through a tax code adjustment, sometimes via Self Assessment.
• Dividends, which have their own separate allowance and rates.