Tax on interest
Tax on savings for pensioners: the allowances retirement brings back
Enter your pensions before tax, the savings you hold outside ISAs and the rate they earn. The tool shows the tax on that interest this year and next, and how much is covered at 0 %.
Tax on savings in retirement
Tax on £2,400 of interest, 2026/27
£280.00
| Same interest, 2027/28 | £308.00 |
| Interest at the 0 % starting rate | £0 |
| Interest you could earn tax free | £1,000 |
From 2027/28 savers aged 65 or over by 5 April keep a £20,000 cash ISA limit.
Retirement often brings back allowances that a salary used up. The full new State Pension is £241.30 a week in 2026/27, about £12,548 over 52 weeks, which sits just below the £12,570 Personal Allowance. A pensioner with only that income still has a few pounds of Personal Allowance, the whole £5,000 starting rate for savings and the £1,000 Personal Savings Allowance, so £6,022 of interest can be received with no tax, the interest on about £150,551 at 4 %. Each pound of pension income above the Personal Allowance removes a pound of the starting rate, and at £17,570 of pensions only the £1,000 allowance is left. With £19,000 of pensions and £60,000 earning 4 %, the tax on £2,400 of interest is £280.00 in 2026/27. The Personal Allowance and the starting rate limit are both frozen until 2030/31, and from 6 April 2027 savers aged 65 or over keep a £20,000 cash ISA limit.
Sums checked by Radif Partners · Editorial policy · How the sums are done
The three layers in retirement
For a working saver, only the Personal Savings Allowance usually matters. In retirement the earlier layers often return. Any Personal Allowance not used by pensions covers interest first. The starting rate for savings then taxes up to £5,000 of interest at 0 %, cut by every pound of pension above the Personal Allowance. Then comes the allowance of £1,000 for a basic rate taxpayer. GOV.UK sets out the order on its page on tax-free interest.
| Pensions a year | Interest tax free in all | Balance at 4 % that earns it | Tax on £2,400, 2026/27 | Same, 2027/28 |
|---|---|---|---|---|
| £12,548 | £6,022 | £150,551 | £0.00 | £0.00 |
| £15,000 | £3,570 | £89,250 | £0.00 | £0.00 |
| £17,570 | £1,000 | £25,000 | £280.00 | £308.00 |
| £19,000 | £1,000 | £25,000 | £280.00 | £308.00 |
| £25,000 | £1,000 | £25,000 | £280.00 | £308.00 |
| £35,000 | £1,000 | £25,000 | £280.00 | £308.00 |
The first row is a pensioner on the full new State Pension and nothing else: more than £6,000 of interest is tax free, so £2,400 costs nothing in either year. At £17,570 of pensions the starting rate has gone, but the £1,000 allowance still covers part of the interest. Beyond that, interest above £1,000 is taxed at 20 %, and at 22 % from 6 April 2027.
Frozen thresholds and rising pensions
Section 10 of the Finance Act 2026 keeps the Personal Allowance and the basic rate limit where they are until 2030/31, and section 9 does the same for the £5,000 starting rate limit. Pensions that are uprated each year therefore take a little more of the Personal Allowance and of the starting rate each April. A retired saver with the same deposits can move from paying nothing to paying a small amount, without any change in their savings.
Collection without a payslip
When a pensioner has a private or workplace pension, tax on interest is normally collected through the tax code on that pension, in the same way as for an employee. When the only income is the State Pension, there may be no code to change, and HMRC uses a Simple Assessment letter instead. The tax code page sets out both routes and their timing.
The ISA rules from April 2027
The cash ISA reform of SI 2026/1018 treats savers differently by age. In any tax year in which you are 64 or under on 5 April, at most £12,000 can go into cash ISAs. From the tax year in which you turn 65, the full £20,000 can be paid into cash. The page for savers over 65 gives birth dates and the first year that applies. Cash already in ISAs stays tax free.
Large deposits
Retired savers often hold larger cash balances than working ones. Deposits are protected by the Financial Services Compensation Scheme up to £120,000 per person per banking licence, a limit that is separate from any tax question. The page on £100,000 of savings follows a retired basic rate taxpayer with that sum through both tax years.