ISA and Savings Tax Method 2026/27: Rules, Order, Tests

1. The tax caused by your interest

The calculators never apply a single "rate on savings". They compute your whole income tax twice, once without the interest and once with it, and show the difference. That difference is what an ISA saves, because interest inside an ISA is not income for tax at all. Doing it this way catches the effects that a flat rate misses: interest that pushes you over a threshold, an allowance that halves, a Personal Allowance that tapers.

Each computation follows the Income Tax Act 2007:

Personal Allowance (section 35): £12,570, reduced by £1 for every £2 of adjusted net income above £100,000, rounded up, so it reaches nothing at £125,140. Adjusted net income here is your income plus interest less gross Gift Aid and relief-at-source pension contributions.
Order of income (section 16): the allowance is set against wages, pensions, profits and rent first; whatever is left covers interest.
Starting rate for savings (section 12): 0 % on savings within the first £5,000 of taxable income. The space is reduced by taxable non-savings income, so it is gone once that income reaches £5,000 above the allowance. The limit is frozen at £5,000 for 2026/27 to 2030/31 (Finance Act 2026, section 9).
Personal Savings Allowance (sections 12A and 12B): a nil rate on the next £1,000 of savings for a basic rate taxpayer, £500 for a higher rate taxpayer, nothing for an additional rate taxpayer. The band is decided on total taxable income including the interest, using UK bands even for a Scottish taxpayer (section 12B(8)).
Savings rates (section 7 as amended): the rest is placed above non-savings income in the bands, £37,700 for the basic rate and £125,140 for the higher rate limit, both widened by gross Gift Aid and pension contributions. Rates are 20 %, 40 % and 45 % in 2026/27 (Finance Act 2026, section 3) and 22 %, 42 % and 47 % in 2027/28 (section 5).

Tests against HMRC's own examples. GOV.UK's page on tax-free interest says that someone with £16,000 of wages and £200 of interest has £1,570 of starting rate left. Our engine gives £1,570 of starting rate space before the interest, and £0.00 of tax on it. Its other example, a basic rate taxpayer with £1,300 of interest, pays tax on £300 at 20 %: the engine gives £60.00. Both are part of the test suite that runs before each build.

2. The taper above £100,000 and the two unknowns of 2027/28

Between £100,000 and £125,140, interest also costs Personal Allowance, which raises the tax on your wages. The calculators show that as a separate line. For someone on £110,000 with £3,000 of interest it is £600.00 in 2026/27, on top of £1,000.00 on the interest itself.

Two figures needed for that line in 2027/28 are not law yet. The main rates of income tax for 2027/28 will be set by next year's Finance Act: the engine uses the 2026/27 rates of 20, 40 and 45 % and the page says so whenever this matters (it gives £1,650.00 in total for the same example). The Scottish rates for 2027/28 will be set by the Scottish Budget: for a Scottish taxpayer in the taper the calculator shows the tax on the interest alone and says that the extra on wages cannot yet be priced. Interest itself is taxed at UK rates in Scotland (section 11D), so the main figure is unaffected. The Scottish rates of 2026/27 come from GOV.UK: 19 % to 48 % across six bands.

3. ISAs

Allowance: £20,000 a year in 2026/27 and 2027/28, of which up to £4,000 in a Lifetime ISA; Junior ISA £9,000. Frozen until April 2031.
Cash limit from 6 April 2027 (SI 2026/1018): £12,000 a year into cash ISAs for anyone 64 or under at the end of the tax year; £20,000 from the tax year in which you turn 65. The age test is applied on 5 April, the last day of the tax year.
Cash inside an investment ISA: from 6 April 2027 its interest bears a flat charge at the savings basic rate, 22 %, paid by the ISA manager. Transfers from a stocks and shares or innovative finance ISA to a cash ISA are refused for under-65s.
Flexible ISAs: money taken out can be put back in the same tax year without using allowance. GOV.UK's example: £10,000 paid in and £3,000 withdrawn leaves £13,000 of room in a flexible ISA, £10,000 in one that is not. The engine reproduces both.
Transfers: 15 working days between cash ISAs, 30 calendar days otherwise.
Lifetime ISA: opened from 18 to 39, paid into until 50, bonus of 25 % up to £1,000 a year, withdrawal charge of 25 % of the amount taken out, home price cap £450,000. GOV.UK's example: £1,000 withdrawn leaves £750, which the tests check.

4. Premium Bonds

NS&I publishes the prize fund rate (4.35 %), the odds per £1 Bond (1 in 21,000) and, each month, the number of prizes of each value. The engine stores the October 2026 table and checks that its total, times twelve, divided by the eligible Bonds implied by the odds, gives back the published rate. The chance of at least one prize is computed exactly from the odds. The spread of winnings is simulated: 4,000 years of twelve draws, each prize value drawn as a Poisson count, with a fixed seed so every visitor sees the same numbers. For £10,000 the median is £350 a year, the mean £435, and the chance of winning nothing in a year 0.3 %. Prizes are tax free, so the comparison with a taxable account uses the gross rate that account must pay to leave the same amount after tax at your income. NS&I's page gives two different start months for the current rate; the site shows the rate without claiming a start month it cannot confirm.

5. What is left out

Dividends and their allowance, foreign interest, chargeable event gains on bonds and the Marriage Allowance.
Blind Person's Allowance, the High Income Child Benefit Charge and student loan repayments.
The timing of interest: the calculators assume it is paid in the year you choose. A bond that pays at maturity counts entirely in that year.
For Scottish taxpayers, Gift Aid and pension relief widen the Scottish bands in the same way as the UK ones: a close approximation, not checked for every band.
No figure is advice. The site ranks no provider and says nothing about which account to open.

6. Sources

The parameter file cites 47 official pages, all read on 19 October 2026:

Errors: see the editorial policy and the contact page.

Tax year 2026/27 (6 April 2026 to 5 April 2027), with the 2027/28 rules already in law, rules last read on 19 October 2026. Worked out from the rules in law on the date shown; not financial advice, and no product is recommended.