Savings Interest Tax Calculator

The Personal Savings Allowance lets you earn a slice of interest each year with no tax on it at all. The allowance is £1,000 for basic-rate taxpayers at 20%, £500 for higher-rate taxpayers at 40%, and nothing for additional-rate taxpayers at 45%. Interest above it is taxed at your marginal income tax rate. It applies to interest from bank and building society accounts, from NS&I and from peer-to-peer lending, although Premium Bond prizes sit outside the system entirely and are always tax-free.

The calculation follows the order HMRC uses. Your salary, or other non-savings income such as a pension or rent, uses the Personal Allowance first, and any allowance it leaves unused covers interest. The interest then sits on top of that income: it passes through the starting rate for savings and the Personal Savings Allowance at 0%, and whatever remains is taxed at 20%, 40% or 45% according to the band it lands in. Which allowance you get depends on your total taxable income with the interest included, and the 0% slices still use up basic-rate band. If the interest itself pushes you from basic into higher rate, the portion sitting in each band is taxed separately rather than the whole sum jumping up a rate. Dividends are stacked above interest, so they do not change the rate charged on it, although they count towards the band that sets your allowance. ISA interest is excluded entirely, since it is neither taxable nor counted against the allowance.

Bands for 2026/27 run from £12,570 to £50,270 for basic rate, £50,271 to £125,140 for higher rate, and above £125,140 for additional rate. Crossing a threshold hurts twice over on savings, because the allowance halves at the same moment the rate charged on the excess goes up. Someone whose salary drifts just past £50,270 can find a modest amount of interest suddenly generating a tax bill that did not exist the year before.

A separate starting rate for savings gives up to £5,000 of interest tax-free to anyone whose non-savings income falls below £17,570. The band tapers away at £1 for every £1 of non-savings income above £12,570. Someone earning £14,000 keeps £3,570 of it, being £17,570 minus £14,000, and adding the £1,000 allowance on top leaves £4,570 of interest untaxed. Where non-savings income is no more than the £12,570 Personal Allowance, the two together shelter £6,000 of interest, plus any Personal Allowance the other income leaves unused. Retirees with only State Pension income are the group who benefit most from this band, and it is applied automatically here.

The ISA wrapper removes the question altogether, since interest inside a cash ISA is tax-free whatever the amount and the £20,000 annual allowance covers most savers comfortably. For a higher or additional-rate taxpayer with savings beyond the allowance, that shelter is worth 40-45% of every £1 of interest earned. Repeated over several years the gap widens. For a higher-rate taxpayer whose £500 allowance is already used, £20,000 in a 5% ISA earns £1,000 of interest in the first year and saves £400 of tax, and adding £20,000 each year lifts the saving to about £2,000 a year once the balance reaches around £100,000. Two changes announced in the November 2025 Budget take effect from 6 April 2027: the cash ISA limit falls to £12,000 a year for savers under 65, while the overall ISA allowance stays at £20,000, and the tax rates on savings income rise by 2 percentage points to 22%, 42% and 47%. Neither applies in 2026/27, the year this calculator uses.

UK banks and building societies report the interest they pay to HMRC after each tax year, so HMRC usually knows about your savings income without being told. Where interest goes over your allowances, HMRC normally collects the tax by adjusting your tax code, often using an estimate based on the previous year's interest, or by sending a Simple Assessment if you have no tax code it can change. You need to register for Self Assessment only if your savings interest is over £10,000, and if you already send a return for another reason the interest simply goes on it.