by Asim Abbas
11 November 2026 
Tax on savings interest: allowances now and the 2027 rate rise
Tax on savings interest: allowances now and the 2027 rate rise
With interest rates higher than a few years ago, more savers are going over their tax-free allowances, often without realising.
- Personal Savings Allowance: £1,000 basic, £500 higher
- Starting rate for savings up to £5,000
- Savings tax rates rise by 2% from April 2027
- ISAs keep interest tax-free
Banks pay interest without deducting tax, so HMRC usually collects it through your tax code, or you report it on a tax return.
This guide explains the savings allowances, how tax is collected and the rate rise due in April 2027.
Savings allowances
| Taxpayer | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
The starting rate for savings gives up to £5,000 of interest at 0%, but it’s reduced by £1 for every £1 of other income above your personal allowance. So it mainly helps people on lower incomes.
Savings tax rates
| Band | 2026/27 | From April 2027 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
The government announced that savings income will be taxed at separate, higher rates from 6 April 2027. These rates apply across the UK, including Scotland.
Income tax calculator
Include your savings interest.
Helen earns £45,000 and has £40,000 in an easy-access account paying 4%, so £1,600 interest. Her Personal Savings Allowance covers £1,000, leaving £600 taxable at 20%, £120. From 2027/28, the same interest would cost £132 at 22%. Moving £25,000 into a Cash ISA would make most of it tax-free.
How the tax is collected
- Banks report interest to HMRC each year
- HMRC usually adjusts your tax code to collect the tax
- You may get a P800 calculation after the year end
- If you file Self Assessment, you include interest on your return
- If interest is over £10,000, you need a tax return
Fixed-fee accountancy support
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Get a fixed-fee quoteCall 0161 531 4179Ways to reduce tax on savings
- ISAs: £20,000 a year allowance. Plans to cut the Cash ISA limit to £12,000 for under-65s apply from April 2027
- Premium Bonds: prizes are tax-free
- Spouse savings: hold savings in the name of the lower earner
- Fixed-term accounts: interest is usually taxed when it’s paid, so check maturity dates
- Pension contributions: can bring a higher rate taxpayer back to the basic band and the £1,000 allowance
Children’s savings
Children have their own allowances. But if money from a parent produces more than £100 of interest a year, it’s taxed as the parent’s income. Junior ISAs are exempt from this rule.
See HMRC’s guide to tax on savings interest, our income tax calculator, or our Self Assessment service.
What should I do next?
All accounts, not just one.
£1,000, £500 or nil.
Before April.
Frequently Asked Questions
How much savings interest is tax-free?
£1,000 for basic rate taxpayers, £500 for higher rate and nothing for additional rate, plus the starting rate for some.
Are savings tax rates changing?
Yes. From April 2027, they rise to 22%, 42% and 47%.
Do I need to tell HMRC about interest?
Usually not. Banks report it and HMRC adjusts your tax code. Interest over £10,000 needs a tax return.
Is ISA interest taxable?
No. ISA interest is tax-free.
Is the Cash ISA limit changing?
The government plans to reduce the Cash ISA limit to £12,000 for under-65s from April 2027.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Ali Imran
I’m Ali Imran, an accountant at Wingate Accountants. I help sole traders, landlords and directors get their returns filed early and accurately, without the last-minute panic.
