Savings Interest Tax 2026/27 — Allowances & ISAs

Most people pay no tax on some or all of their savings interest because the Personal Allowance, Starting Rate for Savings and Personal Savings Allowance may apply. For 2026/27, the PSA is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers; eligible people may also have a Starting Rate for Savings of up to £5,000. The result depends on all your other taxable income and tax band, so check your own position with the Savings Interest Calculator→.

This guide explains the allowances, how interest is ordered into your tax bands, and the strategies that keep interest permanently tax-free.

The Personal Savings Allowance

Your PSA follows your Income Tax band. The £1,000 and £500 examples assume the relevant 2026/27 UK band applies after considering all income and allowances; salary alone does not always determine the result. Adding interest on top can itself move some income into a higher band, which can reduce your PSA. The additional-rate PSA is £0.

The Starting Rate for Savings

The Starting Rate is reduced by other taxable income above the £12,570 Personal Allowance; HMRC’s example is £16,000 of wages, leaving £1,570 of Starting Rate. The Personal Allowance may also cover savings interest that has not already been used by wages, pension or other income. Do not treat £5,000 plus £1,000 as a universal maximum: the amount of interest that is tax-free depends on the ordering of your income and the allowances you have available.

How Interest Is Taxed

Interest is taxed as the top slice of your income, after earnings and before dividends. The order matters: interest is not crowded out by earnings, but it does fill the highest remaining band. A basic-rate employee with £1,500 of interest pays 20% on the £500 above the PSA — £100. A higher-rate employee with £1,200 of interest pays 40% on the £700 above their £500 PSA — £280.

Worked Example — The Low Earner with Savings

Priya earns £4,000 part-time and has £8,000 of interest. Her Personal Allowance is £12,570 but only £4,000 is used, leaving £8,570 of unused allowance that absorbs the first £8,000 of interest. The Starting Rate and PSA are not even needed: all £8,000 is tax-free and she pays nothing.

ISAs, Premium Bonds and Joint Accounts

A couple can subscribe up to £40,000 a year to ISAs (£20,000 each) and keep interest inside those ISAs outside Income Tax. Premium Bond prizes are tax-free; NS&I states that the maximum holding is £50,000 per person. HMRC normally splits interest on a joint account equally, but contact HMRC if the actual beneficial split should be different. Interest over £10,000 can require Self Assessment registration if you do not already file; below that, HMRC may collect tax through a tax code or tell you how to pay it, depending on your circumstances.

Interest Timing, Reporting and the £10,000 Line

The £10,000 line is not a tax-free exemption. If you are employed or receive a pension, HMRC may change your tax code using an estimate of your interest; if you are not in Self Assessment, HMRC may instead tell you how to pay. If savings and investment income is over £10,000, HMRC says you need to register for Self Assessment if you do not already file. If tax was deducted at source and you are due a refund, check whether form R40 or your Self Assessment return is the correct route.

Timing also matters. Banks pay interest monthly or annually, and the tax year runs 6 April to 5 April, so a switch between accounts can shift interest between years. You cannot defer interest across tax years at will, but choosing accounts whose payment dates align with your tax planning can keep you inside a PSA in a year when other income is low. Fixed-rate bonds that roll interest up to maturity concentrate the income in one year — useful if that year is a low-income one, costly if it pushes you over the higher-rate threshold and halves your PSA. For most savers the simpler discipline is: fill the Cash ISA allowance first, keep taxable savings inside the allowances, and let the tax code do the rest.

Non-Taxpayers and Spousal Planning

The most useful planning step is to assess each person’s actual other income and available allowances. A lower-income spouse may have more unused allowance, but there is no universal £6,000 maximum and a joint account is normally split equally for HMRC purposes. Get advice for unusual ownership, residence or beneficial-interest arrangements.

The same logic applies across the household. Children's savings are taxed in their own name, and most children use their Personal Allowance to hold several thousand pounds of interest tax-free — though parental transfers above £100 of interest a year revert to the parent for tax. Grandparents are not subject to that rule, so a grandparent-funded account can genuinely use the child's allowance. The discipline is the same everywhere: fill the tax-free allowances in the lowest-income name first, then use ISAs for the rest, and only let interest spill into taxable territory once both are exhausted.

Reconcile interest with the HMRC record

At the end of the tax year, collect each bank certificate or annual statement and list the gross interest, account holder, payment date, account type and tax deducted. Include fixed-rate accounts whose interest is paid at maturity and accounts that closed during the year. A savings calculator can estimate the result from a balance and rate, but the statement is stronger evidence for the amount actually credited.

Compare the total with HMRC's estimate or tax-code adjustment. If the estimate is wrong because a rate changed, an account closed or a joint account was split incorrectly, contact HMRC through the official route and retain the statement and response. Do not assume that an updated tax code has corrected the historical amount; check the year-to-date PAYE result and use the appropriate refund or return process where required.

Choosing taxable cash, an ISA or Premium Bonds

Compare the after-tax result, access, interest-rate risk and protection terms rather than choosing solely from the advertised rate. A taxable account may pay a higher gross rate but leave less after the PSA or Starting Rate is used. An ISA can shelter future interest but uses the annual subscription allowance and may have different access or transfer conditions. Premium Bond prizes are tax-free but are prize-based rather than a guaranteed interest rate.

Use a dated comparison showing balance, gross return, tax assumption, access conditions and charges. Review it when the tax year changes, income moves into another band or a fixed-rate bond matures. Keep the assumptions separate from the official figures: the PSA and ISA allowance are policy values, while the interest rate and expected Premium Bond return can change.

Ownership matters as much as the account rate. If money belongs beneficially to one person but is held in another person's name, keep evidence of the arrangement and do not change the tax allocation simply to use a lower tax band. For joint accounts, record the normal split and any evidence that supports a different beneficial share. This prevents a tax-planning worksheet from becoming inconsistent with the bank record.

Interest paid after an account closes still belongs in the tax year determined by the relevant payment or entitlement rules. Keep the closing statement and do not discard an account merely because the balance is now zero. When a fixed bond matures, separate the returned capital from the interest so that only the income is compared with the allowances.

Frequently Asked Questions

Run your figures through the Savings Interest Calculator→, then read the ISA Allowance guide to shelter more of your interest and the Dividend Allowance guide if you also hold shares.

Official sources

• GOV.UK: Tax-free savings interest
• GOV.UK: Income Tax rates and allowances
• GOV.UK: Individual Savings Accounts
• GOV.UK: Savings for children
• NS&I: Premium Bonds