Tax19 October 2026

Tax on Savings Interest 2026/27: the Personal Savings Allowance, the Starting Rate and the April 2027 Rise

Written and reviewed by, LLM (UK), CFP®·Published

Tax on Savings Interest 2026/27: the Personal Savings Allowance, the Starting Rate and the April 2027 Rise

Higher interest rates mean more savers are paying tax on their interest, and many only find out when HMRC changes their tax code. You have three tax-free allowances that can cover interest, and the order your income is taxed in decides which ones you get.

This guide covers the 2026/27 tax year (6 April 2026 to 5 April 2027), with three worked examples, how HMRC collects the tax, and the rate rise on 6 April 2027. Figures are for taxpayers in England, Wales and Northern Ireland.

Try it yourself: the Interest Calculator shows how much interest your savings will earn, so you can see how close you are to your allowance.

The three allowances that can cover interest

Allowance 2026/27 amount Who gets it
Personal Allowance £12,570 Most people (it tapers away above £100,000). Any part your wages or pension don't use goes against your savings
Starting rate for savings Up to £5,000 at 0% People whose non-savings income is below £17,570
Personal Savings Allowance (basic rate) £1,000 Basic-rate taxpayers
Personal Savings Allowance (higher rate) £500 Higher-rate taxpayers
Personal Savings Allowance (additional rate) £0 Additional-rate taxpayers

The Personal Savings Allowance (PSA) depends on your tax band. To find your band, HMRC adds your interest to your other income. So the interest itself can decide which PSA you get.

The starting rate for savings is worth up to £5,000. It shrinks by £1 for every £1 of non-savings income (wages, pension, self-employed profit, rental profit) above the £12,570 Personal Allowance. Once non-savings income reaches £17,570 (£12,570 + £5,000), it is gone. HMRC's own example: someone with £16,000 of wages has £3,430 above the Personal Allowance, which leaves £1,570 of starting rate.

Someone with no other income could receive up to £18,570 of interest tax-free in 2026/27: £12,570 Personal Allowance, plus £5,000 starting rate, plus the £1,000 PSA.

Interest above your allowances is taxed at 20%, 40% or 45%, depending on your band. The bands are £12,571 to £50,270 (basic), £50,271 to £125,140 (higher) and over £125,140 (additional).

The order income is taxed in

HMRC taxes income in layers, in this order:

  1. Non-savings income first: employment, pensions, self-employment and property.
  2. Savings income next: bank, building society and most other interest.
  3. Dividends last.

Your salary or pension uses the Personal Allowance and fills the basic rate band first. Interest sits on top, which has two effects:

  • Your PSA still uses up band space. Interest covered by the PSA is taxed at 0%, but it still counts towards the £50,270 basic rate limit. It does not shift the limit upwards.
  • Interest can tip you into higher rate. If your salary is close to £50,270, the interest on top may cross the limit. As soon as any income falls in the higher rate band, your PSA drops from £1,000 to £500. Interest above the line is also taxed at 40%.

Worked example (a): £30,000 salary, £1,800 interest

Step Amount
Salary above Personal Allowance (£30,000 − £12,570) £17,430
Starting rate left (non-savings income is over £17,570) £0
Total income (£30,000 + £1,800) £31,800, basic rate
PSA £1,000
Taxable interest (£1,800 − £1,000) £800
Tax on interest at 20% £160

For most employees only the PSA counts. At the 2027/28 rate of 22%, the same £800 would cost £176.

Worked example (b): £14,000 pension, £6,000 interest

This is where the starting rate matters.

Step Amount
Pension above Personal Allowance (£14,000 − £12,570) £1,430
Starting rate available (£5,000 − £1,430) £3,570
Total income (£14,000 + £6,000) £20,000, basic rate
Interest at 0% under the starting rate £3,570
Interest at 0% under the PSA £1,000
Remaining taxable interest (£6,000 − £3,570 − £1,000) £1,430
Tax on interest at 20% £286

Without the starting rate, £5,000 of the interest would be taxed (£1,000). The tax on the pension itself is also £1,430 × 20% = £286, which makes a total bill of £572. At 22% in 2027/28, the interest tax would be £314.60.

Worked example (c): £49,000 salary, £2,500 interest

Step Amount
Salary above Personal Allowance (£49,000 − £12,570) £36,430
Basic rate band left (£37,700 − £36,430) £1,270
Total income (£49,000 + £2,500) £51,500, higher rate
PSA £500 (not £1,000)
Interest at 0% under the PSA, using basic rate band space £500
Interest at 20% (rest of the basic rate band, £1,270 − £500) £770 = £154
Interest at 40% (£2,500 − £1,270) £1,230 = £492
Tax on interest £646

Crossing £50,270 costs this saver twice. Interest above the line is taxed at 40%, and the PSA is halved. If the PSA had stayed at £1,000, the bill would have been £546, so the halving alone costs £100. At the 2027/28 rates of 22% and 42%, the same interest would cost £686.

The fix in this case. If the employer offers salary sacrifice, giving up £1,230 of salary into the pension brings total income down to exactly £50,270. The saver stays basic rate, gets the full £1,000 PSA and pays £300 on the interest (£1,500 × 20%). Their total Income Tax falls from £7,932 to £7,340, a saving of £592. They also save £98.40 of employee National Insurance (8% of £1,230). A personal pension contribution under relief at source works in a similar way, because it extends your basic rate band by the gross amount you contribute. Use the Income Tax Calculator to check where your income sits.

How HMRC collects the tax

Banks and building societies no longer take tax off interest. Instead:

  • Banks report to HMRC. After 5 April, each provider reports the interest it paid you, and HMRC adds up all your accounts. Joint account interest is split equally.
  • Tax code changes. If you are employed or get a private pension and your interest is £10,000 or less, HMRC usually sends a tax calculation between June and the following March and collects the tax through your tax code. The code may include an estimate of this year's interest, so check it in your Personal Tax Account.
  • Simple Assessment. If you have no tax code, or it can't be adjusted, HMRC may send a Simple Assessment letter showing what you owe and the deadline.
  • Self Assessment. If your interest is more than £10,000, you must report it on a Self Assessment return, registering if necessary. Existing filers report interest there anyway.

If you owe tax and have heard nothing from HMRC by 31 March after the end of the tax year, gov.uk says to contact HMRC.

Fixed-term bonds: when is the interest taxed?

Interest is taxed in the tax year it "arises". HMRC's Savings and Investment Manual says interest arises when it is received or made available to you, for example when it is credited to an account you can draw on.

For fixed-rate bonds, the account terms matter:

  • Interest credited each year, with some access (even with a penalty for early withdrawal): taxed each year as it is credited.
  • No access at all until maturity: HMRC's guidance is that the interest arises, and is taxed, at maturity.

So a three-year no-access bond can land three years of interest in one tax year, using up your PSA in one go or pushing you into higher rate. Check your bond's terms; one that pays interest annually spreads the income.

The April 2027 rise

From 6 April 2027, the savings income tax rates rise by two percentage points to 22% (basic), 42% (higher) and 47% (additional). The government's technical note says the change applies UK-wide. The starting rate for savings and the PSA stay the same in cash terms.

  • Timing matters. Interest arising by 5 April 2027 is taxed at 2026/27 rates; from 6 April 2027, at the new rates. A no-access bond maturing in May 2027 has all its interest taxed at 22% or more.
  • The Cash ISA limit falls too. From 6 April 2027, under-65s can pay at most £12,000 a year into Cash ISAs, within an unchanged £20,000 overall allowance. See our guide to the Cash ISA limit cut.

The Autumn Budget on 28 October 2026 could change some of these rules. Check the latest position before you act.

Ways to reduce tax on your savings interest

  • Use your ISA allowance. Interest inside an ISA is tax-free and doesn't count towards your PSA. The 2026/27 allowance is £20,000 and can all go into cash this year. The ISA Calculator and Cash ISA vs Stocks & Shares ISA Calculator show the long-term difference.
  • Hold savings in the lower-earning partner's name. A spouse or civil partner with little income may have their full Personal Allowance, the starting rate and a £1,000 PSA available. In example (c), the same £2,500 of interest would be tax-free in the name of a partner with no other income. Joint accounts are split 50/50 by default. If your partner has unused allowance, also check the Marriage Allowance Calculator.
  • Premium Bonds. Up to £50,000 per person. Prizes are tax-free, though the prize rate is an average and your return can be lower.
  • Pension contributions. As example (c) shows, paying into a pension can keep you below £50,270, so you keep the £1,000 PSA and avoid 40% tax on interest.
  • Choose when your bonds mature. Spread maturities across tax years where you can; interest arising before 6 April 2027 is taxed at the lower current rates.

For which assets belong in which wrapper, see our guide to tax-efficient account placement.

Frequently asked questions

Do I need to tell HMRC about my savings interest? Usually not, if it is £10,000 or less. Your bank reports it and HMRC adjusts your tax code or sends a Simple Assessment. If it is over £10,000, you must file a Self Assessment return.

Does savings interest count when working out my tax band? Yes. HMRC adds your interest to your other income to find your band. That is how interest can move you from a £1,000 PSA to a £500 one.

Can I get the starting rate for savings if I work? Only if your non-savings income is below £17,570. For most full-time employees, it is zero.

How is interest on a joint account taxed? HMRC splits it equally between the account holders. Each person's half is set against their own allowances.

The bottom line

In 2026/27, basic-rate taxpayers can earn £1,000 of interest tax-free, higher-rate taxpayers £500 and additional-rate taxpayers nothing, and low earners may get up to £5,000 more under the starting rate. Watch the £50,270 line: interest that crosses it halves your PSA and is taxed at 40%. With rates rising to 22%, 42% and 47% from 6 April 2027, this is the year to fill an ISA, hold savings in the right partner's name and check when your bonds mature.

Start with the Interest Calculator to estimate your interest for the year, then check your band with the Income Tax Calculator.

Related calculators and guides

This article is for general guidance only and is not personalised tax advice. Tax rules are complex and your circumstances may differ. For advice tailored to your situation, speak to a qualified accountant or tax adviser. Figures are for the 2026/27 tax year and sourced from gov.uk.

Sources

Rates and rules in this article are taken from the official pages below. Figures were checked against these sources at the last review date shown above; always confirm against the source before acting.

About the author

, LLM (UK), CFP®, CIM®, PFP®. Financial planner with 18 years in banking and wealth management, holding a UK master of laws and the Canadian CFP®, CIM® and PFP® designations. Writes and reviews every calculator and article on FinanceToolz.

Rates and thresholds in this article are taken from HMRC and GOV.UK. See our editorial policy for how content is sourced, reviewed and corrected. This is general information, not regulated financial advice.

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