Tax on interest
Savings interest and your tax code: how the tax is collected
No tax leaves your account when the bank pays interest. This guide follows the money from the bank’s report to HMRC through to the tax code, the Simple Assessment letter or the tax return that collects it.
Banks and building societies have paid interest without deducting tax since April 2016, so any tax due on savings has to be collected by HMRC afterwards. Each provider reports the interest it paid once the tax year ends on 5 April. For employees and people with a private pension, HMRC usually collects what is owed through the tax code: the code can be changed both to recover tax for the previous year and to include an estimate of interest for the current one, and the amount is then taken in small instalments from pay or pension. Where the code cannot be changed, or there is no code, HMRC may send a Simple Assessment letter instead. Self Assessment applies to people who already file a return and to anyone with more than £10,000 of interest in a year. As an example, £2,400 of interest on a £38,000 salary creates £280.00 of tax for 2026/27, about £23.33 a month if spread over a year of payslips.
How the tax on last year’s interest comes back to you
Tax due for 2026/27
£280.00
| Collected through the tax code, if it fits | usually through a later year’s code |
| Spread over 12 months | £23.33 |
| Self Assessment needed | no |
Banks report interest after 5 April; HMRC then sends a calculation and usually adjusts a later tax code.
Sums checked by Radif Partners · Editorial policy · How the sums are done
Why the bank takes no tax
Since April 2016 banks and building societies have paid interest in full, with no tax taken off, whatever the saver’s band. Working out the tax is left to HMRC, which receives figures from every bank, building society and other deposit taker after the year ends and sets them against the saver’s allowances. GOV.UK describes the system on its tax on savings interest pages.
This matters for timing. The tax on interest earned in one tax year is rarely paid in that year. It is usually collected afterwards, sometimes well afterwards, and the method depends on how the rest of your income is taxed. Nothing in the process requires the saver to act unless HMRC asks, unless the saver already files a return, or unless interest goes above £10,000.
The three collection routes
The GOV.UK page on how you pay tax on savings interest sets out the routes in order.
Tax code. If you are employed or receive a private pension, HMRC normally changes your tax code. The change can do two jobs at once: recover tax still owed for the previous year, and include an estimate of the interest you will earn this year so that the tax on it is taken as you go. The code is reduced by the amount of interest expected to be taxable, which lowers the tax-free part of each payslip. Your Personal Tax Account shows the estimate. If it looks wrong, HMRC can correct it and will send a new code to your employer or pension provider.
Simple Assessment. If the code cannot be changed, or you do not have a tax code at all, HMRC may send a Simple Assessment letter. It sets out the tax owed and explains how and when to pay it. A person who owes tax on interest but has received no such letter by 31 March after the end of the tax year is asked to contact HMRC.
Self Assessment. Anyone already sending a tax return puts interest on the return, and the tax is paid with the rest of the bill. Interest above £10,000 in a year also brings Self Assessment: if a bank reports more than that, HMRC sends a notice to file a return. A person who is not registered and has to file must register.
What the amounts look like
The table follows one employee on £38,000 of salary as their taxable interest grows. The tax for 2026/27 is shown with the monthly amount it would represent if collected evenly over twelve payslips, together with the same interest at the 2027/28 rates and the route the law points to.
| Interest in the year | Tax 2026/27 | Tax 2027/28 | 2026/27 spread monthly | Usual route |
|---|---|---|---|---|
| £1,500 | £100.00 | £110.00 | £8.33 | tax code or Simple Assessment |
| £2,400 | £280.00 | £308.00 | £23.33 | tax code or Simple Assessment |
| £4,000 | £600.00 | £660.00 | £50.00 | tax code or Simple Assessment |
| £8,000 | £1,400.00 | £1,540.00 | £116.67 | tax code or Simple Assessment |
| £12,000 | £2,200.00 | £2,420.00 | £183.33 | Self Assessment |
At £1,500 only the part above the £1,000 allowance is taxed, so the code change is small. As interest grows the bill grows faster, because the interest eventually reaches the higher rate band and halves the allowance. Above £10,000 the code is no longer the expected channel and a tax return takes over.
The timeline for one tax year
Take interest earned in 2026/27, the year that runs from 6 April 2026 to 5 April 2027. During that year your code may already contain an estimate based on what your accounts paid the year before; if so, part of the tax is collected as the interest is earned. After 5 April 2027 the banks report the actual figures. HMRC then compares them with what the code collected. If the code took too little, the balance is usually recovered in a later year through a code change, or by Simple Assessment where a code cannot be used. If it took too much, the excess is refunded.
The same pattern applies to 2027/28, with two differences. The rates on taxable interest rise to 22 %, 42 % and 47 % from 6 April 2027, so an estimate for that year is priced at higher rates. And the actual figures for 2027/28 reach HMRC only after 5 April 2028, so tax on interest earned in the first year of the new rates will often still be being collected in 2028/29 or later. The page on the 2027/28 rates shows the extra cost by income.
When the estimate is out of date
An estimate built from last year’s interest is only a guess about this year. It can be too high when a saver has moved money into a cash ISA, spent part of a balance, or seen the rate on a variable account fall. It can be too low when a fixed-rate bond matures and pays several years of interest in one go, or when a large sum has been deposited. Either way, the difference is put right once the real figures arrive, but in the meantime a too-high estimate takes money from each payslip that is later handed back.
The GOV.UK guidance points to the Personal Tax Account for checking the estimate against your own statements, and to contacting HMRC to correct it. When tax has already been overpaid in the current year, the GOV.UK page on paying too much says the employer or pension provider can refund the difference through pay or pension once the code is corrected. Earlier years are covered on the page on reclaiming tax on savings.
Retired savers and people with no code
A pensioner with a private or workplace pension normally has a tax code on that pension, and tax on interest is collected through it in the same way as for an employee. Someone whose income comes only from sources that have no code may have nothing for HMRC to adjust, and is then the typical recipient of a Simple Assessment letter. The page for pensioners works through the allowances retired savers often still have, which can mean no tax at all is due.
Checking the figures yourself
HMRC offers an official estimator, check how much tax you pay on dividends and interest from savings, updated for 2026/27. It does not cover 2027/28, does not compare a taxable account with an ISA, and is not meant for people who file Self Assessment. The tool on this page gives the tax due for 2026/27 on the interest you enter, and the tax on savings interest calculator shows both years side by side. Neither replaces HMRC’s own calculation, which uses the figures your providers report.
Joint accounts and several providers
Each provider reports separately, and HMRC adds the figures together before applying your allowances. A saver with several small accounts can therefore owe tax even though no single account pays much. For a joint account the interest is divided between the holders before each share meets its holder’s own allowances and code. Interest earned inside an ISA is not taxable, so it should never be part of the estimate; if it seems to be, the figures are worth checking with HMRC.