Do you pay tax on savings interest?
How the Personal Savings Allowance works, who still owes tax on interest, and how HMRC actually collects it.
Written by Jack Dev · Last updated 2 October 2026
The Personal Savings Allowance
Most people pay zero tax on savings interest — the Personal Savings Allowance (PSA) sees to that. Basic-rate taxpayers get £1,000 of interest tax-free a year, higher-rate taxpayers get £500, and additional-rate taxpayers (over £125,140) get nothing at all — every penny of their interest is potentially taxable.
Which band you fall into depends on your total income, not just the interest itself — so if interest happens to tip you into higher-rate territory, you could lose part of that £1,000 allowance for the year.
There's a second allowance for low earners
Less well known: a 0% starting rate for savings worth up to £5,000, available to anyone whose other income doesn't fully use up their Personal Allowance and basic-rate band. In practice that's mostly retirees with a small pension and a decent savings pot, rather than the average employee — but it's worth knowing it exists.
Stack the Personal Allowance, the starting rate, and the PSA together, and someone with modest earned income can genuinely receive several thousand pounds of interest a year without owing HMRC anything.
ISAs sit outside all of this
Interest inside a Cash ISA — or the cash side of a Stocks and Shares ISA — is always tax-free, full stop, no matter the balance, and it never touches your PSA. If you're sitting on savings outside an ISA and paying tax on the interest, moving it inside one (up to the £20,000 annual ISA allowance) is usually the easiest fix.
How the tax actually gets collected
You don't have to tell HMRC about interest that stays within your PSA — there's nothing to do there. Banks report what they've paid you straight to HMRC each year, and if you do owe tax above your allowance, it's usually collected automatically through next year's tax code rather than a bill landing on your doormat. Only people already doing Self Assessment for other reasons tend to report it that way instead.
Our Savings Interest Calculator shows how a balance grows with compound interest — use the allowances above to work out whether any of that growth would actually be taxable for you.
Frequently asked questions
£1,000 a year for basic-rate taxpayers, £500 for higher-rate, and nothing for additional-rate taxpayers — plus a separate 0% starting rate of up to £5,000 for people with low other income.
Usually not. Banks report what they've paid you directly to HMRC, who adjust your tax code to collect anything owed — you'd only report it yourself if you already file a Self Assessment return.
No. ISA interest is always tax-free and never touches your PSA, however large the balance.
This guide is general information, not financial or tax advice — check GOV.UK or a qualified adviser for anything that affects a real financial decision.