Do I Pay Tax on Savings Interest?

The 30-second version

• ISA interest — never taxed. Skip the rest if all your savings are inside an ISA.
• Non-ISA savings interest — tax-free up to your Personal Savings Allowance (£1,000 / £500 / £0).
• Interest above your PSA — taxed at your income tax rate (20% / 40% / 45%).
• HMRC gets the numbers from your bank automatically. Most people never file anything.

Your allowances in order

For every pound of savings interest you earn, HMRC applies these in sequence:

1. Personal allowance (£12,570). Only relevant if your total income is under £12,570.
2. Starting rate for savings (£5,000 at 0%). Fully available if your non-savings income is £12,570 or below. Tapers £1-for-£1 once non-savings income exceeds £12,570. Fully gone once non-savings income hits £17,570.
3. Personal Savings Allowance. £1,000 basic-rate, £500 higher-rate, £0 additional-rate.
4. Tax on the rest. At your marginal income tax rate.

When most people pay tax

With rates around 4.5%, a basic-rate taxpayer needs roughly £22,000 outside an ISA before they start paying tax. A higher-rate taxpayer needs roughly £11,000. An additional-rate taxpayer pays tax on the first pound.

See the exact figure for each band on PSA by tax band.

How HMRC actually collects the tax

Banks and building societies report your interest to HMRC after the end of each tax year (April 6). HMRC:

• Compares your total interest against your PSA + starting rate.
• If you owe tax, they adjust your PAYE tax code the following year (so a bit more comes out of each payslip).
• If you're self-employed or already file self-assessment, the interest goes on your return.
• If your untaxed interest is over £10,000, you must register for self-assessment.

You don't normally need to do anything. The first sign you owe tax on savings is often a coding notice from HMRC in the post.

Common edge cases

Joint accounts

Interest is split 50/50 for tax purposes by default (unless you're married and elect differently). Each holder uses their own PSA.

Fixed-rate bonds

If a fixed-rate bond pays interest only at maturity, HMRC treats the full amount as arising in that tax year — potentially pushing you over your PSA in a single year. Choose bonds that pay interest annually if you're near the threshold.

Children's savings

If a child's savings interest from money given by a parent exceeds £100/year, HMRC treats it as the parent's income for tax. Use a Junior ISA to avoid this.

Premium Bonds

NS&I Premium Bond prizes are tax-free and do not count towards your PSA. But the effective return (currently around 4.15%) is lower than top easy-access rates, so they're rarely optimal unless you're at the additional rate or have already used your ISA and PSA.

How to legally pay zero tax on savings

1. Fill your ISA first. £20,000 per adult per tax year. Never taxed, never reported to HMRC as taxable interest. See best Cash ISAs.
2. Use your spouse's PSA if they're in a lower band.
3. Use Premium Bonds for balances over £85k FSCS limit at a bank you already use.
4. Route regular saver bonuses — some regular savers pay 6-7% but on small monthly amounts, keeping interest inside PSA.

Related pages

• PSA calculator — model your own figures
• PSA by tax band 2026/27
• Does an ISA count towards my PSA?
• Best Cash ISAs UK
• Best easy-access savings accounts
• Complete PSA guide