Which Tax Rate Applies? A Guide to Using a Tax Calculator Interest Tool

Tax can be tricky, but figuring out how much interest you owe (or can earn) doesn’t have to be. Using a tax calculator interest tool can help simplify things, ensuring you’re on top of your finances.

Which tax rate applies?

Simple:

1. Figure out what your tax-free allowance is
2. 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:

A tax calculator interest tool can help you quickly figure out where you stand based on your Income Tax band.

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

Why Use a Tax Calculator Interest Tool?

A tax calculator interest tool can save you time and ensure accuracy when managing your savings interest. It’s a must-have resource for anyone looking to simplify their tax process and avoid overpayments.