Savings Interest Tax · FAQs
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) is a tax-free allowance on savings interest introduced in April 2016. For 2026/27: basic rate taxpayers (income up to £50,270) get £1,000 tax-free · higher rate taxpayers (income £50,271 to £125,140) get £500 · and additional rate taxpayers (income above £125,140) get £0. Interest within your PSA is paid gross (without deduction) and does not need to be declared. Interest above your PSA is taxed at your marginal income tax rate.
Do I pay tax on ISA interest?
No. Interest earned inside any ISA (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA or Lifetime ISA) is completely free of income tax regardless of the amount. ISA interest does not count towards your Personal Savings Allowance and never appears on a Self Assessment tax return. This makes ISAs particularly valuable for higher-rate taxpayers or anyone with savings generating interest above their PSA.
What is the starting rate for savings?
The starting rate for savings is a 0% band worth up to £5,000 that applies if your non-savings income (salary, pension, self-employment) is below £17,570. For every £1 of non-savings income above the £12,570 personal allowance, the starting rate band shrinks by £1. At £17,570 non-savings income the starting rate band reaches zero. People with low incomes supplemented by savings interest benefit most · for example a retired person on a small state pension who also earns bank interest.
How do I report savings interest to HMRC?
Banks and building societies now pay interest gross (without tax deducted). If your savings interest exceeds your PSA in a tax year, you must pay tax on the excess. HMRC may adjust your PAYE tax code to collect the amount automatically · this happens for employed taxpayers with modest amounts. If you are self-employed or the tax owed is significant (typically above £1,000), you should declare it via a Self Assessment tax return by 31 January after the end of the tax year.
Does Scottish income tax affect savings interest tax?
The Scottish Government sets income tax rates on earnings and pensions, but savings interest is always taxed at UK (not Scottish) rates. This means Scottish taxpayers pay the same savings interest tax as English taxpayers at 20%, 40% or 45%. The starting rate for savings and the Personal Savings Allowance also apply equally to Scottish residents.
For informational purposes only · Not financial advice · Tax rates shown are for 2026/27 · Always consult a qualified tax adviser for personal guidance