DO I PAY tax on my savings INTEREST?
Reading time 5 minutes
At a glance:
You do not pay any extra tax on the money you save, but you may pay tax on the interest it earns.
How much tax you pay depends on how much interest you make, your income and your Personal Savings Allowance.
Savings accounts like Cash ISAs let you earn interest without paying tax.
How do tax and savings work?
In the UK, you may pay tax on the interest you earn from your savings.
If you save £10,000 in a savings account and earn 5% interest, you’ll earn £500 in interest over a year.
The £500 in savings interest you receive may be subject to tax, depending on your circumstances including whether it goes over your tax free allowances.
How does savings interest work?
Savings interest is money you earn from keeping your savings with a bank or building society.
Savings interest can be paid ‘gross’ or ‘tax-free’.
Gross interest means no income tax is taken off before you get it. But you may need to pay tax on it later.
Tax-free interest means you do not need to pay income tax on it. You get tax-free interest from ISAs.
Will I pay tax on my savings interest?
Most people can earn some interest on their savings without paying tax.
Personal Savings Allowance (PSA)
Depending on your Income Tax band, you could get a Personal Savings Allowance (PSA). This is an amount of savings interest you can earn without paying tax. This does not include interest from ISAs, which is tax-free.
Basic rate taxpayers can earn up to £1,000 savings interest tax-free.
Higher rate taxpayers can earn up to £500 tax-free.
Additional rate taxpayers do not have a PSA.
Find out what Income Tax band you are in at GOV.UK.
Starting rate for savings
You may be able to get up to £5,000 interest tax free with the starting rate for savings. This is only for people on lower incomes. Find out more at GOV.UK.
How is tax on savings interest paid?
Banks and building societies report the savings interest you earn to HM Revenue & Customs (HMRC). HMRC then works out if any tax is due based on your total income for the tax year. A tax year runs from 6 April one year to 5 April the following year.
If you are employed or get a pension, your tax code will be changed and you might pay all the tax owed from your savings automatically. This isn’t always the case. If you go over your savings allowance and do not receive a letter by 31 March of the following tax year, you must contact HMRC as soon as possible.
If you are self-employed, you must include any savings interest on your Self-Assessment tax return.
Do I pay tax on my savings balance?
No, you don’t pay extra tax on the amount you’ve saved. You may need to pay tax on the interest you earn, but only if it goes over your tax-free allowances.
How does a Cash ISA work?
Cash ISAs are tax-free, no matter what your Income Tax band is. The interest you earn does not count towards your PSA, so you do not need to pay tax on it.
You can save up to £20,000 in a Cash ISA in the 2026/27 tax year, if the qualifying criteria are met. This is due to go down in the next year for people aged under 65.
The content on this page is for reference. It is not financial advice. For help with money issues, try MoneyHelper.
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