Tax on interest
Tax on savings interest: what you will owe this year and next
Type your income and the interest your taxable accounts pay in the tax year. The calculator applies the four layers of tax-free interest in the order the law sets, then the rate of your band.
Tax on your interest, this year and next
Tax in 2026/27
£160.00
| Tax in 2027/28 at the new rates | £176.00 |
| Interest taxed at 0 % | £1,000 |
| Your allowance on savings | £1,000 (basic rate) |
| Interest kept after tax, 2027/28 | £1,624.00 |
Interest from bank and building society accounts outside an ISA is taxed as income, but most savers pay nothing because four layers come first. Any Personal Allowance left over from wages or pension (£12,570 in all) covers interest first. Then the starting rate for savings taxes up to £5,000 of interest at 0 %, shrinking by £1 for each £1 of other taxable income. Then the Personal Savings Allowance takes £1,000 for a basic rate taxpayer, £500 for a higher rate taxpayer and nothing at the additional rate. Only what is left is taxed: 20 %, 40 % or 45 % in 2026/27, rising to 22 %, 42 % and 47 % from 6 April 2027 under the Finance Act 2026. With £30,000 of wages and £1,300 of interest, the tax is £60.00 this year and £66.00 in 2027/28.
Sums checked by Radif Partners · Editorial policy · How the sums are done
The order of the layers matters
The four tax-free layers are not added up and set against the interest as one lump. Income tax works through income in a fixed order: wages, pensions and rent first, then savings, then dividends. Your Personal Allowance is used by the first slice, so a full-time worker has none left for interest. The £5,000 starting rate then applies only to savings that fall within the lowest £5,000 of taxable income: with wages of £17,570 or more, that band is already full before the first pound of interest arrives (Income Tax Act 2007, section 12A). The Personal Savings Allowance comes next, and it is a nil rate band rather than a deduction, so the interest it covers still counts when your band is worked out.
| Other income | Interest tax free | Tax 2026/27 | Tax 2027/28 | Change |
|---|---|---|---|---|
| £12,570 | £1,500 | £0.00 | £0.00 | £0.00 |
| £16,000 | £1,500 | £0.00 | £0.00 | £0.00 |
| £25,000 | £1,000 | £100.00 | £110.00 | £10.00 |
| £40,000 | £1,000 | £100.00 | £110.00 | £10.00 |
| £49,000 | £500 | £246.00 | £266.00 | £20.00 |
| £60,000 | £500 | £400.00 | £420.00 | £20.00 |
| £110,000 | £500 | £700.00 | £720.00 | £20.00 |
| £150,000 | £0 | £675.00 | £705.00 | £30.00 |
The table shows a pattern people do not expect. On £1,500 of interest, a pensioner on £16,000 pays nothing because the starting rate still has room, while someone on £49,000 pays more than someone on £40,000 by more than the change in rate alone would explain: the interest takes their total over the basic rate limit, their allowance halves to £500 and part of what is left is taxed at the higher rate.
From April 2027
Section 5 of the Finance Act 2026 sets the savings rates for 2027/28 at 22 %, 42 % and 47 %. The allowances do not move: the starting rate limit is frozen at £5,000 until 2030/31 and the Personal Savings Allowance stays at £1,000 and £500. So nobody who pays no tax on interest today starts paying because of the new rates; those who already pay see each taxable pound cost two pence more. The page on the 2027/28 rates works through who is affected most.
How it is collected
There is no tax deducted by the bank: interest has been paid gross since April 2016. HMRC uses the figures banks send after the year ends and, for most employees and pensioners, adds an estimate to the tax code or sends a Simple Assessment letter (GOV.UK, how you pay tax on savings interest). The tax code page explains the timing, and the refund page what to do when too much was taken.
To compare the same balance in a cash ISA, where interest is never taxed, use the ISA against taxable account calculator.