What tax do you pay on savings interest?

We've updated this guide on 3rd July 2019

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?

It 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.

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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