Tax on savings interest

When you earn interest on your savings, it’s important to understand when you might need to pay tax. It’s also useful to know about tax-free allowances and accounts, helping you to keep and grow your money safely.

What is a Personal Savings Allowance?

A Personal Savings Allowance (PSA) is the amount of interest you can earn in a non-ISA account before having to pay tax on savings. A non-ISA savings account might include your regular savings bank account.

Not everyone has the same PSA. Your PSA will depend on your tax status.

  • Basic rate taxpayers can earn up to £1,000 in interest before tax is due.
  • Higher rate taxpayers can earn up to £500.
  • Additional rate taxpayers do not get a PSA.

Learn more about your PSA

What income counts towards my PSA?

Income affecting your PSA could come from several sources, including:

  • Interest earned on non-ISA savings, like a savings bank account.
  • Interest on fixed-rate bonds.
  • Interest on peer-to-peer loans.
  • Interest on government and corporate bonds.

What is tax on savings interest?

One incentive for holding money in a savings account is the opportunity to earn interest on top, helping your balance to grow over time. This is usually paid at regular intervals as a percentage of the money you’ve deposited and held in an account.

Any amount of interest that you earn over and above your annual PSA will be taxable and must be declared. The rate of tax you may pay depends on your salary, other income including any government benefits you receive and your tax allowances.

Cash ISAs are tax-free, but there are limits on what you can deposit each year.

Do I have to pay tax on my savings?

There’s no simple answer here, as personal circumstances can vary so much.

If you already complete a personal tax return, you should declare any interest earned on your savings as part of your calculations. Any amount of tax due will depend on your other sources of income, tax allowances and so on.

If you don’t usually complete a personal tax return, you may find that your tax code changes over time. That’s because your bank will notify HM Revenue & Customs (HMRC) of any interest received. HMRC will, in turn, complete any necessary calculations and changes.

Interest earned from money held in ISAs are an exception. These are tax-free.

Are there tax-free savings accounts?

You can earn tax-free interest with any savings account, so long as you don’t exceed your annual personal savings allowance

Otherwise, you might like to explore tax-free ISAs. Just be aware that annual limits apply.

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