What are the tax rules on savings interest?

How you're taxed on the interest you earn from savings depends on the type of product you have, your total income, and your tax band. When you earn interest, it’s considered as taxable income and may be subject to Income Tax if it exceeds your tax-free allowances. These allowances include:

• Personal Allowance – this is the amount of income you can earn each tax year before paying any income tax. For most people, it’s £12,570 (2025/26 tax year).
• Starting Rate for Savings – this is an extra tax-free allowance of up to £5,000 for savings interest which is available to people with lower incomes from other sources like wages or pensions.
• Personal Savings Allowance (PSA) – this lets you earn a certain amount of savings interest tax-free depending on your income tax band.

Your tax band also determines how much of your savings interest is taxable. If your interest earnings exceed the thresholds, you’ll pay tax at your standard Income Tax rate. HMRC may then adjust your tax code or require you to file a Self-Assessment tax return.

Banks and building societies usually report interest to HMRC automatically. But if you want to check or update anything, it’s easy to do through your personal tax account.

Whether you’re saving in a fixed-rate bond, regular saver, notice account, or easy-access account, the interest you earn is subject to Income Tax if it exceeds your available allowances. These include the PSA, Personal Allowance, and Starting Rate for Savings. But if you’re saving in a tax wrapper account like an ISA, you won’t be taxed on any interest earned.

Interest may be paid monthly, quarterly, or annually, depending on the product. It’s important to check your account terms and keep track of when interest is credited, as this affects which tax year it falls into.

Your Personal Savings Allowance (PSA) is a tax-free allowance that lets you earn interest on savings without paying Income Tax, up to a certain limit based on your income tax band.

If you're a basic-rate taxpayer, you can earn up to £1,000 in savings interest tax-free each tax year. Higher-rate taxpayers can earn up to £500 tax-free. Additional-rate taxpayers do not receive a PSA.

Any interest earned above your PSA is taxed at your marginal Income Tax rate, either 20%, 40%, or 45%, depending on your total income. For example, if you’re a basic-rate taxpayer and earn £1,200 in interest, £1,000 would be tax-free, and the remaining £200 would be taxed at 20%. You can use our helpful Personal Savings Allowance calculator to work out your PSA if you’re unsure.

No, ISAs are considered a ‘tax-wrapper’ which means that any interest earned is completely tax-free regardless of how much you save.

It’s worth noting, your ISA interest doesn’t count towards your PSA either. So even if you’ve used up your PSA through other savings accounts, your ISA interest will remain tax-free.

If your savings interest goes over your tax-free allowances, like the Personal Savings Allowance, Personal Allowance, or Starting Rate for Savings, HMRC will usually collect any tax through PAYE by adjusting your tax code.

If your total savings and investment income is over £10,000 in a tax year, you’ll need to register for Self-Assessment and file a tax return. You can check and manage this easily through your personal tax account.

To report your interest accurately:

• Check your bank statements or annual interest summaries from your savings providers.
• Log all savings accounts, especially if you hold multiple accounts across different banks or platforms.
• Keep records of the interest earned each tax year to ensure you stay within your allowances and avoid underreporting.

Staying organised and proactive with your savings records helps ensure you meet your tax obligations and avoid unexpected bills.

Tax on joint savings accounts

If you have a joint savings account, the interest you earned is usually split equally between both account holders.

Each person’s share of the interest counts toward their individual Personal Savings Allowance (PSA). For example, if a joint account earns £1,800 in interest, each person would typically be taxed on £900. This means you could potentially stay within your PSA if you’re both basic-rate taxpayers, are liable to income tax and don’t earn significant interest from other savings accounts.

It’s important that if you have a joint account, you understand your shared tax responsibilities and keep accurate records of any interest you’ve earned. This helps ensure you report your portion correctly and avoid underpayment or overpayment of tax.

Tax implications for children’s savings

Children will have their own tax-free allowances, including Personal Allowance and Personal Savings Allowance, which means they can earn some interest on savings without paying tax, just like adults.

However, if you’re a parent that wants to gift money to your child, and the interest earned from that gifted money exceeds £100 per year, it’s treated as the parent’s income for tax purposes. This rule applies per parent, per child and is designed to avoid parents from using children’s accounts to avoid tax.

Junior cash ISAs, on the other hand are like any other ISA and are completely tax-free. Any interest earned won’t be subject to Income Tax and isn’t affected by the £100 parental gifting rule, making them a tax-efficient way to save for your child’s future.

To maximise tax efficiency, it’s important to set up savings accounts in the child’s name and keep track of who contributes to them. This ensures the correct tax treatment and helps avoid any unexpected liabilities.

If the interest you earn from savings exceeds your tax-free allowances, you’ll need to pay tax on the amount above those thresholds.

HMRC collects tax in two main ways:

• PAYE (Pay As You Earn): If you’re employed, HMRC may automatically adjust your tax code based on the interest you’ve earned in the previous year. This will allow them to collect the tax you owe directly from your salary or pension in the following tax year.
• Self Assessment: If your total savings and investment income exceeds £10,000 in a tax year, you’ll need to register for Self Assessment and report your interest on a tax return.^{Footnote [1]}