Tax on Savings Interest in the UK 2025-26: Personal Savings Allowance
Most UK savers do not pay tax on their savings interest — but with interest rates higher than they have been for over a decade, more people are breaching their allowances. Here is what you need to know about the Personal Savings Allowance (PSA) and when HMRC will want a share of your interest.
Personal Savings Allowance 2025-26
| Tax band | Personal Savings Allowance |
|---|---|
| Basic Rate taxpayer (income £12,571–£50,270) | £500 |
| Higher Rate taxpayer (income £50,271–£125,140) | £500 |
| Additional Rate taxpayer (above £125,140) | £0 |
| Non-taxpayer / Starting Rate for Savings | Up to £6,500 tax-free (see below) |
Note: the PSA was reduced from £1,000 (Basic Rate) and £500 (Higher Rate) to a uniform £500 in April 2025 as part of ongoing fiscal changes. Check HMRC's current guidance for the exact figure in force.
Starting Rate for Savings: up to £5,000 at 0%
There is a separate allowance for those with low non-savings income. If your non-savings income (salary, self-employment, pension) is below £17,570, you may be entitled to the Starting Rate for Savings — a 0% band of up to £5,000 on savings interest. The £5,000 band reduces by £1 for every £1 of non-savings income above the Personal Allowance (£12,570). Combined with the PSA, a non-earner could receive up to £6,500 in savings interest tax-free.
ISA interest: always tax-free
Interest earned inside a Cash ISA or Stocks & Shares ISA is entirely exempt from income tax, regardless of your tax band. The ISA allowance in 2025-26 is £20,000. If you have significant savings generating interest above your PSA, moving them into a Cash ISA eliminates the tax liability entirely.
How HMRC knows about your savings interest
Banks and building societies report interest payments directly to HMRC. If you receive interest above your PSA, HMRC will typically collect the tax by adjusting your PAYE tax code rather than requiring you to complete a Self Assessment return. However, if your untaxed interest income exceeds £10,000, Self Assessment registration is required.
What rate is savings interest taxed at?
Above the PSA, savings interest is taxed at your marginal income tax rate — 20% (Basic Rate), 40% (Higher Rate), or 45% (Additional Rate). There is no separate 'savings tax rate.'
Frequently asked questions
Do I need to declare savings interest on a tax return?
If all your savings interest is within your Personal Savings Allowance, you do not need to do anything. HMRC adjusts your code automatically. If you pay too little tax, HMRC will collect it through a code adjustment — usually the following year.
Does savings interest count toward the higher rate threshold?
Yes. Savings interest is added to your total income when determining which tax band you fall into. If interest income pushes you above £50,270, the excess is taxed at 40%.
Is Premium Bond interest taxable?
No. Premium Bond prizes are completely tax-free and do not count against your ISA allowance or Personal Savings Allowance.