£250,000 Savings at 4.5% — Tax on Interest 2025-26
Annual interest earned: £11,250 · Personal Savings Allowance applied
Tax breakdown — £250,000 savings at 4.5%
| Taxpayer band | PSA | Taxable interest | Tax owed | Net interest |
|---|---|---|---|---|
| Basic rate (salary ≤ £50,270) | £1,000 | £10,250 | £2,050 @20% | £9,200 |
| Higher rate (£50,270–£125,140) | £500 | £10,750 | £4,300 @40% | £6,950 |
| Additional rate (over £125,140) | Nil | £11,250 | £5,063 @45% | £6,187 |
Frequently asked questions
How much tax do I pay on interest from £250,000 savings at 4.5%?
Interest earned: £11,250/year. Basic rate taxpayer (salary under £50,270): tax £2,050, net interest £9,200 — the first £1,000 is covered by your Personal Savings Allowance. Higher rate taxpayer (salary £50,270-£125,140): tax £4,300, net £6,950 (PSA is only £500). Additional rate taxpayer (salary over £125,140): no PSA, tax £5,063, net £6,187.
What is the Personal Savings Allowance for 2025-26?
The PSA allows basic rate taxpayers to earn £1,000 in savings interest tax-free per year, and higher rate taxpayers £500. Additional rate taxpayers (over £125,140) have no PSA — all interest is taxed at 45%. ISA interest is always tax-free and does not count toward the PSA.
At 4.5%, what balance triggers a tax bill for a basic rate taxpayer?
A basic rate taxpayer's PSA covers £1,000 of interest. At 4.5% interest, this is used up at a balance of £22,222. With £250,000 at 4.5%, your interest is £11,250, so you exceed the PSA by £10,250, which is taxed at 20%, giving a bill of £2,050.
Should I put £250,000 in an ISA or savings account?
A cash ISA pays tax-free interest regardless of your tax band. A regular savings account uses your PSA first (but at 4.5% on £250,000 you earn £11,250, exceeding the basic rate PSA of £1,000). If you are a higher or additional rate taxpayer, an ISA is more valuable. Basic rate taxpayers may not benefit from an ISA if interest stays within their £1,000 PSA.
Do I need to declare savings interest on £250,000 to HMRC?
If your total savings interest exceeds your Personal Savings Allowance (£1,000 basic rate / £500 higher rate / nil additional rate), you must declare the excess to HMRC. At 4.5% on £250,000, your interest is £11,250/year. This exceeds the basic rate PSA, so basic rate taxpayers pay tax on £10,250, and higher/additional rate taxpayers owe more. HMRC may collect this via PAYE coding or Self Assessment.
How much will £250,000 grow to in 5 years at 4.5%?
With compound interest at 4.5% per year, £250,000 grows to approximately £311,545 after 5 years and £388,242 after 10 years (before tax). Each year you earn roughly £11,250 in interest, which then compounds. If you are a basic rate taxpayer, the after-tax interest is £9,200/year, giving a net compound balance of approximately £299,512 after 5 years.