Tax on savings interest in the UK for 2026/27: how the allowances work
Most banks pay savings interest gross, but that does not always mean the interest is tax-free. Your allowances depend on your wider taxable income and tax band.
For 2026/27, the Personal Savings Allowance is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers do not receive a Personal Savings Allowance. A separate starting rate for savings can apply to some people with low non-savings income. Interest inside an ISA is generally tax-free and does not use the Personal Savings Allowance.
The Personal Savings Allowance depends on your tax band
For the 2026/27 tax year, government rates show a £1,000 Personal Savings Allowance for basic-rate taxpayers and £500 for higher-rate taxpayers. Additional-rate taxpayers have no Personal Savings Allowance. The allowance is about the amount of savings income that can be taxed at 0%, not a cap on how much money you may keep in savings accounts.
Your tax band is determined by your wider taxable income, so a large amount of interest can itself affect the calculation. Scottish income-tax bands differ for non-savings income, while the treatment of savings income follows UK rules. When income sits near a threshold, use HMRC guidance or professional advice rather than assuming last year’s band still applies.
The starting rate for savings is a separate rule
The starting rate for savings can provide up to £5,000 of savings income taxed at 0% for people with sufficiently low other income. The available band reduces as non-savings income rises above the relevant level. It is separate from the Personal Savings Allowance, and some lower-income savers can benefit from both.
This is one reason simple statements such as “the first £1,000 of interest is tax-free” can be incomplete. For some people the tax-free amount is larger; for additional-rate taxpayers it can be smaller. The full calculation needs income context.
ISA interest sits outside these savings allowances
Interest earned inside a Cash ISA does not use the Personal Savings Allowance and is generally free from UK income tax. That can make an ISA more valuable when ordinary savings interest is likely to exceed your available 0% bands, even if a taxable account sometimes advertises a slightly higher rate.
Compare the after-tax return rather than just the headline rate. A taxable account paying more can still win for someone whose interest stays within allowances, while an ISA can become more attractive for a higher-rate saver with a large cash balance.
Banks normally pay interest without deducting tax
Since the savings tax changes introduced in 2016, banks generally pay interest gross. HMRC can collect tax due through PAYE coding or Self Assessment depending on the person’s circumstances and the information it receives. Do not assume that because the bank paid the full interest into your account no tax can be due later.
Keep annual interest statements, especially if you use several banks. Interest across accounts is considered together for tax purposes. Accounts held under different brand names do not create separate Personal Savings Allowances.
Estimate interest before the tax year ends
A quick projection can prevent surprises. Multiply balances by expected rates, allow for rate changes and add fixed-term interest that may be credited in the tax year. Then compare the total with your likely allowance and wider income. If the figure is close to a threshold, remember that variable-rate interest and bonuses can move the result.
Tax rules can change, so date your calculation and check GOV.UK for the relevant tax year. This article covers general savings interest, not every specialist product or individual tax situation. If your affairs include trusts, overseas accounts, large investment income or complex residency issues, tailored tax advice can be appropriate.
A simple 2026/27 example
Suppose a basic-rate taxpayer expects £1,250 of taxable savings interest in 2026/27 and has no special starting-rate entitlement. The first £1,000 can fall within the Personal Savings Allowance, leaving £250 potentially taxable at the person’s applicable rate. A higher-rate taxpayer with the same interest would normally have a £500 allowance, leaving a larger taxable amount.
The example is deliberately simple: wider income, starting-rate eligibility, ISAs and other circumstances can change the result. Use it to understand the mechanics, then apply current HMRC guidance to your own income rather than treating a generic example as a tax calculation.
Joint savings accounts can complicate a quick estimate because interest is normally attributed between account holders according to the relevant ownership rules, while each person has their own tax position and allowances. Do not simply apply one partner’s Personal Savings Allowance to all household interest. Where ownership or beneficial shares are unusual, check HMRC guidance or obtain advice.
Fixed-term accounts can create timing questions because interest may be credited annually, monthly or at maturity. The tax year in which interest is taxable can depend on when it arises and becomes available under the product terms. For large fixed deposits near a tax threshold, check the provider’s interest schedule and HMRC guidance rather than assuming the whole term is taxed evenly.
Sources and verification
Isabelle Reed — Personal Finance Writer
Savings tax becomes much easier once you stop thinking about the bank account and start thinking about the person’s total savings income. For 2026/27 the Personal Savings Allowance remains £1,000 for a basic-rate taxpayer and £500 for a higher-rate taxpayer, while additional-rate taxpayers receive none. But that is not the whole story because the starting rate for savings can help people with low other income, and ISA interest sits outside these allowances. I would total expected interest across every ordinary savings account, not calculate each bank separately. Then I would compare taxable and ISA rates on an after-tax basis. Someone comfortably inside the allowance may prefer the highest ordinary savings rate; someone already above it may value an ISA even when the headline rate is slightly lower. The most common mistake is assuming gross interest means tax-free interest. Banks usually pay gross, but HMRC can still collect tax later. Keep the annual interest records and review the calculation whenever income or rates change materially. I always prefer a small worked example because it shows that the allowance applies to interest, not the savings balance. A £50,000 account is not automatically taxable and a much smaller account can produce taxable interest when rates are high.
MyBankAnswers uses official provider and UK regulatory sources wherever practical. Information is general and does not constitute financial advice.