Tax on interest
Reclaiming tax on savings interest
Overpaid tax on interest usually comes from an estimate, not from the bank. This guide sets out how the overpayment arises, how the current year is corrected and how earlier years are claimed back.
Since April 2016 banks pay interest without deducting tax, so an overpayment of tax on savings now comes mostly from HMRC’s own estimate: the tax code can include a figure for this year’s interest, based on what your accounts paid before, and it can be too high if balances have moved into ISAs, rates have fallen or income has dropped. For the current year GOV.UK points to the Personal Tax Account to compare the estimate with your bank statements, and to HMRC to correct it; once the code is put right, any excess can be repaid through your pay or pension. For earlier years the claim must be made within 4 years of the end of the tax year concerned, through a Self Assessment return if you send one, by contacting HMRC, or on form R40. A worked case: with £11,000 of other income and £2,500 of interest, the correct tax on the interest for 2026/27 is £0.00, because unused Personal Allowance and the starting rate cover all of it, so anything collected on it is refundable.
Did you pay too much tax on interest?
Refund due
£300.00
| Correct tax on the interest | £0.00 |
| Paid or collected | £300.00 |
| Time limit | 4 years after the tax year |
A past-year refund is claimed through Self Assessment, by contacting HMRC or on form R40, within 4 years of the end of the tax year.
Sums checked by Radif Partners · Editorial policy · How the sums are done
Where overpayments come from today
Under the system in place since April 2016, no tax is taken off interest at the bank. Every pound collected on savings is collected by HMRC, so an overpayment means that HMRC’s figures and the saver’s real figures differ. The most common sources are:
- An estimate that runs ahead of reality. The tax code can include an estimate of this year’s interest, often built from last year’s. If money has since moved into a cash ISA, been spent, or earns a lower rate, the code collects tax on interest that is never paid.
- A fall in other income. When pay stops or drops part way through a year, unused Personal Allowance and the starting rate for savings can cover interest that the code treated as taxable.
- A wrong split or a wrong record. Interest on a joint account belongs half to each spouse or civil partner by default, and interest earned inside an ISA is not taxable at all. A record that puts all the joint interest on one person, or counts ISA interest, overstates the bill.
- A change of band. An estimate that assumes a higher rate taxpayer’s £500 allowance when the year ends at the basic rate, with a £1,000 allowance, takes too much.
Sizing the overpayment
The table compares the correct tax on £2,500 of interest with the tax collected if the code had assumed £4,000. It shows how much the size of an overpayment depends on the rest of the saver’s income: at low incomes both figures are nil because the allowances cover even the larger sum, while for a full-time employee every pound of over-estimate is taxed.
| Other income | Correct tax on £2,500 | Tax if £4,000 assumed | Overpaid |
|---|---|---|---|
| £9,000 | £0.00 | £0.00 | £0.00 |
| £11,000 | £0.00 | £0.00 | £0.00 |
| £14,000 | £0.00 | £0.00 | £0.00 |
| £16,000 | £0.00 | £286.00 | £286.00 |
| £20,000 | £300.00 | £600.00 | £300.00 |
| £40,000 | £300.00 | £600.00 | £300.00 |
The calculator above does the same sum for your own figures: enter your other income, the interest you actually earned and the tax already paid or collected on it, and it shows the difference.
A worked example
Take an employee on £30,000 whose accounts paid £3,000 of interest last year. HMRC builds the same figure into this year’s code, so the code is set to collect £400.00 on savings: the £1,000 allowance covers the first slice and the rest is taxed at 20 %. In May, though, most of the money moved into a cash ISA, and the taxable accounts end up paying only £1,200 over the year. The correct tax is then £40.00, so £360.00 is collected that was never owed. Nothing went wrong at the bank and the saver made no mistake; the estimate simply described a year that did not happen. The fix is the correction described below, made as soon as the change in balances is known.
Putting the current year right
For the tax year in progress, the GOV.UK page on paying too much tax on savings sets out a short sequence. Check the savings interest estimate in your tax code through your Personal Tax Account. Compare it with your bank and building society statements. If it is wrong, contact HMRC to correct it. HMRC then issues a new code, and where too much tax has already been taken in the year, the employer or pension provider can refund the difference through your pay or pension.
The same correction also stops further over-collection for the rest of the year. Because codes run month by month, a correction made early in the tax year has more effect than one made in March, when most of the tax has already been taken. The way codes are used to collect tax on interest is described on the tax code page and on GOV.UK’s page on how you pay tax on savings interest.
Claiming for earlier years
For a tax year that has ended, the claim has to be made within 4 years of the end of that year. GOV.UK lists three ways to do it:
- through your Self Assessment tax return, if you send one;
- by contacting HMRC, which may ask for evidence where your bank or building society has already reported your interest for that year;
- on form R40, the claim form linked from the GOV.UK page.
GOV.UK frames the previous-year claim around savers whose total income was below their Personal Allowance, which is the situation where no tax at all was due on interest. Where an estimate in a code took more than the year’s real interest justified, the comparison with your statements is the same, and the time limit runs from 5 April at the end of each year:
| Tax year | Year ends | Last day to claim |
|---|---|---|
| 2022/23 | 5 April 2023 | 5 April 2027 |
| 2023/24 | 5 April 2024 | 5 April 2028 |
| 2024/25 | 5 April 2025 | 5 April 2029 |
| 2025/26 | 5 April 2026 | 5 April 2030 |
| 2026/27 | 5 April 2027 | 5 April 2031 |
What to have to hand
A claim is easier to check when the interest figures are clear. Statements from each bank and building society show the interest paid, and the dates show which tax year each payment belongs to. With those figures, the correct tax can be worked out layer by layer: Personal Allowance left over, then the starting rate of up to £5,000, then the £1,000 or £500 allowance, as set out on the GOV.UK page on tax-free interest. The Personal Savings Allowance page explains which allowance applies.
HMRC’s own estimator, check how much tax you pay on dividends and interest from savings, covers 2026/27 and gives an official view of the tax for that year. It is not designed for people who file Self Assessment, and it does not cover earlier years or 2027/28.
Retired savers and people with low income
Retired savers and people on low incomes are the group most likely to have had tax collected on interest that was in fact covered by their allowances. A pensioner with only the State Pension has the whole starting rate and the whole Personal Savings Allowance to use, and the page for pensioners shows how much interest that covers. A worker whose hours were cut, or who stopped work in the middle of a year, may have had a code that still assumed a full salary. In both cases the starting point is the same: compare the interest actually received with what HMRC used, then follow the route above that fits the year.
After 6 April 2027
From 2027/28 the savings rates rise to 22 %, 42 % and 47 %. The rules on refunds do not change, but each pound of over-estimated interest that is taxed costs two pence more, so the same error in a code produces a slightly larger overpayment. The allowances, and therefore the amount of interest that should never have been taxed at all, stay where they are.