What tax do you pay on savings interest?
Which tax rate applies?
Simple:
- Figure out what your tax-free allowance is
- The rest of your savings interest gets taxed at the usual Income Tax rate.
What about ISAs?
You never pay tax on gains from ISAs.
They also don’t count towards your allowance.
How much can I earn tax-free from savings interest?
Your tax-free Personal Savings Allowance depends on your Income Tax band:
| Income Tax band | Tax-free savings allowance |
|---|---|
| If you only earn savings interest (this is very rare) | You can use your Personal Allowance – £12,500 |
| Low earner (other income under the Personal Allowance) | up to £5,000 |
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
What counts as “savings interest”?
Any interest you earn from:
- bank accounts (the most common one)
- credit unions and building societies
- bonds.
But also:
- interest earned on other currencies (USD, EUR, …) held in UK-based accounts
- P2P lending interest (the kind you get from LendingCrowd, Funding Circle, etc., but excluding what you get from their Innovative Finance ISAs)
- life annuity payments.
How about interest from joint accounts?
Usually it’s split 50-50 between partners – but not always.
Read more on our guide to paying tax on interest from joint accounts.
How do I pay tax on savings interest?
- If you’re PAYE or pensioner, you don’t need to do anything: HMRC will change your tax code automatically
- Or through a self assessment tax return.
Important to remember
- your bank will not withhold tax for you
- if you received more than £10,000 in interest, you’ll need to complete a self assessment tax return regardless
- HMRC estimates your interest every year when changing your tax code – if you ever overpay, just fill in Form R40 and get your tax back.
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