Savings interest tax: allowances and 2026 UK rates
For the 2026/27 tax year, most UK savers can receive some bank interest without paying tax, but the amount depends on their wider income. The Personal Savings Allowance remains £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers.
For 2026/27, basic-rate taxpayers can normally receive up to £1,000 of savings interest within the Personal Savings Allowance; higher-rate taxpayers up to £500; additional-rate taxpayers get no Personal Savings Allowance. Lower-income savers may also qualify for the 0% starting rate for savings of up to £5,000, reduced as other income rises above the Personal Allowance.
Start with interest, not the savings balance
Tax is based on savings income, not simply on how much money sits in the account. £20,000 earning 2% produces £400 of annual interest; £20,000 earning 5% produces £1,000. The same balance can therefore sit comfortably inside an allowance one year and use all of it the next.
Estimate the full tax-year interest across all taxable accounts, including fixed accounts that pay at maturity if the interest becomes taxable in that year. Do not look at one bank in isolation.
Practical check: A basic-rate taxpayer earns £1,300 of taxable savings interest in the 2026/27 tax year. Write down the amount, date, deadline and channel before you act, then compare total interest, tax band, Personal Savings Allowance, starting-rate eligibility and whether interest is inside an ISA. Add interest across accounts before applying the allowance. For a basic-rate taxpayer with £1,300 of interest and a £1,000 Personal Savings Allowance, £300 remains taxable. Keep annual interest statements, tax code or Self Assessment records and account list together so a later conversation with the bank starts from a verified record rather than memory.
For the 2026/27 tax year, GOV.UK lists a Personal Savings Allowance of £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers. The savings tax rates for 2026/27 remain 20%, 40% and 45% respectively; announced higher savings rates apply from April 2027, not the current tax year.
The Personal Savings Allowance depends on your tax band
For 2026/27 the allowance is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers have no Personal Savings Allowance. HMRC works out the band after adding savings interest to other taxable income, so interest itself can affect the band in edge cases.
A basic-rate taxpayer receiving £1,300 of taxable savings interest has £300 above a £1,000 allowance. At a 20% savings rate in 2026/27, that £300 would create £60 of tax, matching HMRC’s own example.
Use a small decision table for this situation. Start with A basic-rate taxpayer earns £1,300 of taxable savings interest in the 2026/27 tax year. Verify total interest, tax band, Personal Savings Allowance, starting-rate eligibility and whether interest is inside an ISA before choosing. That prevents one unclear detail from driving the whole decision. Add interest across accounts before applying the allowance. For a basic-rate taxpayer with £1,300 of interest and a £1,000 Personal Savings Allowance, £300 remains taxable.
Lower-income savers can have a separate starting-rate band
The starting rate for savings can provide up to £5,000 of savings income at 0% when other taxable income is low enough. HMRC says the full amount is available where relevant and is reduced by £1 for every £1 of other income above the Personal Allowance.
If other income is £16,000 and the Personal Allowance is £12,570, the £3,430 excess reduces the £5,000 starting-rate band to £1,570. That can sit alongside the Personal Savings Allowance if the saver qualifies.
For A basic-rate taxpayer earns £1,300 of taxable savings interest in the 2026/27 tax year., preserve annual interest statements, tax code or Self Assessment records and account list. Put the items in date order and add a short note explaining what each item proves. Do not bury the key fact inside dozens of screenshots. Add interest across accounts before applying the allowance. For a basic-rate taxpayer with £1,300 of interest and a £1,000 Personal Savings Allowance, £300 remains taxable.
ISAs keep their interest outside these calculations
Interest inside a Cash ISA is tax-free and does not use the Personal Savings Allowance. That can become more valuable as taxable savings rates and balances rise. For 2026/27 the overall ISA allowance remains £20,000.
Do not move money into an ISA solely because the taxable account pays interest. Compare the ISA rate with the best taxable rate after tax. A taxpayer with unused savings allowance can sometimes earn more net interest outside an ISA.
Worked decision point: A basic-rate taxpayer earns £1,300 of taxable savings interest in the 2026/27 tax year. Before taking an irreversible step, verify total interest, tax band, Personal Savings Allowance, starting-rate eligibility and whether interest is inside an ISA through a channel you chose yourself. Add interest across accounts before applying the allowance. For a basic-rate taxpayer with £1,300 of interest and a £1,000 Personal Savings Allowance, £300 remains taxable. If HMRC's estimate is wrong, use the account statements to correct the interest figure rather than disputing the tax calculation without evidence.
The rules change again from April 2027
The government has announced higher tax rates on savings income from 6 April 2027: 22%, 42% and 47% for the main savings bands, while the structure of the Personal Savings Allowance is retained. That future change should not be applied to 2026/27 calculations.
Keep tax years separate. Interest received in March 2027 belongs to 2026/27; interest arising after 6 April 2027 can fall under the new savings rates. When a fixed account spans the boundary, check when the interest is treated as received.
Keep a simple interest ledger for fixed accounts. If one bond pays £2,400 at maturity and another savings account pays £700 during the same tax year, the taxable interest total can be £3,100 even though the money was earned economically over different periods. The tax treatment can depend on when interest arises or becomes available under the product terms, so retain annual interest certificates and maturity statements. Those records are far more reliable than trying to reconstruct several years of interest from current balances.
Joint savings can require another layer of checking because interest is normally attributed according to beneficial ownership rather than simply to whichever person has spare allowance. Married couples and civil partners often own joint bank accounts equally unless the underlying ownership is different and properly evidenced. If a large balance belongs mainly to one person but is held jointly for convenience, do not assume the interest can automatically be split to use two Personal Savings Allowances. Ask for tax advice if ownership is unclear.
Sources and verification
Isabelle Reed
The easiest way to make savings tax understandable is to calculate interest in pounds first. Add the year’s taxable interest, identify which allowance applies, and tax only the excess. The account balance by itself tells you almost nothing. I would also keep 2026/27 separate from the announced April 2027 changes; mixing those two sets of rates is an easy way to produce a confident but wrong answer.
MyBankAnswers uses official provider and UK regulatory sources wherever practical. Information is general and does not constitute financial advice.