Savings tax guide: 2026/27
UK Savings Tax Calculator 2026/27: PSA, SRS & Worked Examples
How UK Income Tax applies to savings interest in 2026/27: the £1,000 / £500 / £0 Personal Savings Allowance by tax band, the £5,000 Starting Rate for Savings (gated by non-savings income below £17,570), the ISA and Premium Bonds tax-free wrappers, joint-account splitting under Form 17, six worked scenarios across retiree, part-time, basic-rate, higher-rate and additional-rate taxpayers, and the £100,000 Personal Allowance taper interaction.
Overview - how savings interest is taxed
UK savings interest is taxed under Part 4 ITTOIA 2005 with three layered allowances that determine how much of the interest is tax-free before marginal rates apply. The structure is:
- Personal Allowance (£12,570) - same allowance covering all income. If your TOTAL income (employment, pension, savings, etc) is below £12,570 you pay no Income Tax at all.
- Starting Rate for Savings (£5,000 at 0%) - available only if your non-savings income is below £17,570 (the £12,570 PA plus the £5,000 SRS band). Reduced pound-for-pound by non-savings income above £12,570. Maximum case for retirees and part-time workers.
- Personal Savings Allowance - £1,000 for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate. Determined by your total income including savings.
- Marginal rate on excess - any savings interest beyond the above allowances is taxed at 20% / 40% / 45% depending on band.
ISA wrapped savings and Premium Bond prizes operate entirely outside this structure - tax-free regardless of band. Maximum tax-free savings interest in a non-wrapper account is £6,000 (full SRS + basic-rate PSA) for retirees and part-time workers with non-savings income below £12,570; for most working-age basic-rate taxpayers it is £1,000 (PSA only); for additional-rate taxpayers it is £0.
Worked scenarios
| Scenario | Non-savings | Savings | SRS available | PSA | Taxable savings | Tax | Notes |
|---|---|---|---|---|---|---|---|
| Retiree on £10k pension + £3k savings interest | £10,000 | £3,000 | £5,000 | £1,000 | £0 | £0 | Non-savings income below £12,570 PA - full £5,000 SRS available + £1,000 PSA. All £3,000 of savings interest covered by SRS alone. |
| Part-time worker on £16k + £4k savings interest | £16,000 | £4,000 | £1,570 | £1,000 | £1,430 | £286 | Non-savings income above PA but below £17,570 cap - partial SRS remaining (£1,570). Plus £1,000 PSA. £1,430 of savings taxable at 20% basic rate. |
| Basic-rate employee £35k + £1,500 savings interest | £35,000 | £1,500 | £0 | £1,000 | £500 | £100 | Non-savings above £17,570 cap - no SRS. £1,000 PSA covers most of the savings. £500 taxable at 20% = £100 tax. |
| Basic-rate employee £35k + £800 savings interest | £35,000 | £800 | £0 | £1,000 | £0 | £0 | Entire £800 covered by £1,000 PSA. £0 tax. No SA registration needed if savings is only other income. |
| Higher-rate employee £70k + £1,500 savings interest | £70,000 | £1,500 | £0 | £500 | £1,000 | £400 | Higher-rate PSA only £500. £1,000 taxable at 40% = £400 tax. |
| Additional-rate employee £150k + £2,500 savings interest | £150,000 | £2,500 | £0 | £0 | £2,500 | £1,125 | Additional-rate has £0 PSA and £0 SRS. Full £2,500 taxable at 45% = £1,125 tax. ISA and Premium Bond alternatives become valuable. |
Starting Rate for Savings - the £17,570 cap
The Starting Rate for Savings (SRS) is a £5,000 band of savings interest taxed at 0%, available only where your total non-savings income is below £17,570 (the £12,570 Personal Allowance plus the £5,000 SRS band). The SRS is reduced pound-for-pound by non-savings income above the £12,570 PA. The arithmetic:
| Non-savings income | SRS available | Notes |
|---|---|---|
| £0 - £12,570 | £5,000 (full) | Full SRS plus £1,000 PSA = £6,000 tax-free savings. |
| £15,000 | £2,570 | £5,000 - (£15,000 - £12,570) = £2,570 remaining. |
| £17,570 | £0 | SRS fully tapered out at the £17,570 cap. |
| £17,570+ | £0 | No SRS. PSA still applies based on tax band. |
The SRS is the most generous savings-tax relief available in the UK personal tax code but is structurally unavailable to most working-age employees because the £17,570 cap is below typical full-time employment income. The principal beneficiaries are: retirees on basic State Pension only (around £11,500/year); part-time workers under the £17,570 threshold; students and others with low non-savings income; non-resident UK citizens drawing UK-source income below the threshold.
Personal Savings Allowance by tax band
| Tax band | Total income range | PSA | Notes |
|---|---|---|---|
| Basic rate (20%) | £12,571 - £50,270 | £1,000 | Standard rate for most UK working-age employees on full-time employment. |
| Higher rate (40%) | £50,271 - £125,140 | £500 | Half the basic-rate PSA. Higher marginal rate also bites harder on the excess. |
| Additional rate (45%) | £125,141+ | £0 | No PSA. All savings interest taxable at 45%. ISA wrapper becomes structurally essential. |
The PSA was introduced on 6 April 2016 alongside a fundamental restructuring of UK savings taxation. Before April 2016 banks deducted 20% basic-rate tax at source on savings interest under the deduction-of-tax regime; from April 2016 onwards interest is paid gross (no deduction) and the PSA replaces the deducted basic-rate tax for most savers. The current £1,000 / £500 / £0 structure has been unchanged since 2016 and has not been uprated for inflation - real-terms erosion vs CPI is approximately 30% since 2016 reflecting the same fiscal-drag effect as other frozen UK personal-tax thresholds.
Tax-free alternatives - ISA, Premium Bonds, NS&I
Three structural alternatives provide unlimited tax-free returns on savings outside the PSA / SRS framework:
- Cash ISA - up to £20,000 annual contribution limit (shared with Stocks & Shares ISA, IF-ISA, LISA). Interest entirely tax-free regardless of band. The principal tax-free wrapper for cash savings. Easy-access, fixed-rate and notice variants available across UK providers. See our ISA allowance guide.
- Premium Bonds - NS&I product where prize draws replace traditional interest. £25 minimum, £50,000 maximum per person. Prize rate 4.15% effective annualised yield 2025/26 (subject to monthly variation). All prizes entirely tax-free under ITTOIA 2005 section 692. A married couple can pool £100,000 of household savings with both at the maximum holding. See our PSA guide.
- NS&I Income Bonds and certain other NS&I products - some NS&I products are tax-free (Premium Bonds, Junior ISA, the closed Children's Bonds); most NS&I cash-savings products (Income Bonds, Direct Saver, Direct ISA) are taxable in the standard way and use the PSA / SRS framework. NS&I status itself does not confer tax exemption - the product type does.
Frequently asked questions
How much savings interest is tax-free in 2026/27?
Up to £6,000 of savings interest can be tax-free depending on your income mix. The £6,000 is the maximum case: £5,000 Starting Rate for Savings at 0% (only available if your non-savings income is below £17,570) plus £1,000 Personal Savings Allowance for basic-rate taxpayers. For most working-age basic-rate taxpayers with employment income above £17,570 the SRS is unavailable and you have only the £1,000 PSA tax-free. Higher-rate taxpayers (£50,271+) have a £500 PSA. Additional-rate taxpayers (£125,141+) have no PSA - all savings interest is taxable at 45%. ISA interest is always tax-free regardless of band; Premium Bond prizes are always tax-free regardless of band.
What is the Starting Rate for Savings?
The Starting Rate for Savings is £5,000 of savings interest taxed at 0%, available only if your total non-savings income (employment, pension, rental, self-employment, dividends) is below £17,570 - which is the £12,570 Personal Allowance plus the £5,000 SRS band. The SRS is reduced pound-for-pound by non-savings income above the £12,570 PA. So a retiree with £10,000 pension income retains the full £5,000 SRS; a part-time worker with £15,000 employment income retains £2,570 of SRS (£5,000 - £2,430 over PA); an employee with £17,570+ of non-savings income retains £0 SRS. The SRS is the most generous savings-tax relief for retirees, students, part-time workers and others with non-savings income below £17,570 but is structurally unavailable to most working-age employees.
How is the Personal Savings Allowance applied?
The PSA is £1,000 / £500 / £0 by tax band (basic / higher / additional). It applies AFTER the Starting Rate for Savings allocation. The order: (1) Savings interest first absorbs Starting Rate for Savings up to your available SRS limit; (2) Remainder absorbs PSA up to your band's limit; (3) Anything beyond is taxed at your marginal rate. Critical edge: the PSA doesn't move you between tax bands but is determined by your total income (including savings). A taxpayer right at the £50,270 higher-rate threshold can find that adding £600 of savings interest pushes them to higher rate and the PSA from £1,000 to £500 simultaneously - a "PSA cliff edge" that occasionally matters at borderline incomes.
How do I report savings interest to HMRC?
Three routes depending on amount. (1) Under £10,000 of savings interest with no other Self Assessment triggers: HMRC adjusts your PAYE tax code automatically using bank-reported information (UK banks and building societies report interest to HMRC under the Bank Levy and Saver Reporting regime). No action required. (2) Over £10,000 of savings interest in any year, or where you have other Self Assessment triggers: register for Self Assessment and report on the SA100 form. (3) Foreign-source savings interest (overseas bank accounts, foreign-domiciled bonds): always requires Self Assessment with the foreign-income supplementary pages, even where UK-source savings alone would be below the £10,000 threshold. The £10,000 SA registration trigger applies separately from the £1,000 trading allowance, £1,000 property allowance and Rent-a-Room £7,500 thresholds which trigger SA at different points.
When is an ISA worth it?
ISAs become tax-efficient as savings interest crosses your PSA threshold. For basic-rate taxpayers with savings interest below £1,000 / year, ISA gives no tax benefit (the same interest in a non-ISA savings account is already tax-free under PSA). Above £1,000 of interest, ISA shelters the excess that would otherwise face 20% Income Tax. For higher-rate taxpayers the threshold is lower (£500 PSA) so ISAs become valuable sooner. For additional-rate taxpayers (£0 PSA) every pound of ISA-sheltered interest saves 45% Income Tax. The annual ISA contribution limit is £20,000 across cash, stocks and shares, innovative finance and lifetime ISAs combined. Junior ISA (£9,000 / year) and Lifetime ISA (£4,000 / year with 25% government bonus to age 50) operate separately within the £20,000 framework. See our ISA allowance guide for the full mechanics.
How do Premium Bonds compare?
Premium Bonds are NS&I savings products where prize draws replace traditional interest. Prize money is entirely tax-free under section 692 ITTOIA 2005. Maximum holding £50,000 per person, minimum £25. The 2025/26 prize rate is around 4.15% effective annualised yield (subject to monthly variation), which is competitive with leading easy-access savings accounts. Premium Bonds are particularly attractive to: additional-rate taxpayers (£0 PSA) where 45% Income Tax would otherwise apply to savings interest; higher-rate taxpayers with savings interest exceeding £500 PSA; spouses pooling £50,000 each for £100,000 of household tax-free yielding capital. Pure return is volatile - the prize structure means many bondholders earn substantially less than the headline rate, while a small number win £25 or £50 prizes and an even smaller number win £1m monthly jackpots. The headline yield is the expected long-run average, not a guaranteed return.
How does the dividend allowance interact with savings?
The £500 dividend allowance for 2026/27 (cut from £1,000 in April 2024) is separate from the £1,000 / £500 / £0 Personal Savings Allowance. Dividend income and savings interest are taxed under different rate schedules: dividends at 8.75% / 33.75% / 39.35% (basic / higher / additional) above the £500 dividend allowance; savings interest at 20% / 40% / 45% (basic / higher / additional) above the PSA and SRS. Both allowances stack on top of the £12,570 Personal Allowance and £5,000 SRS so a basic-rate retiree can have £12,570 PA + £5,000 SRS + £1,000 PSA + £500 dividend allowance = £19,070 of total UK tax-free income before any tax bites. This is one of the more generous tax-free income profiles available in the UK personal tax code and explains why structured investment portfolios for higher-net-worth retirees often emphasise the savings / dividend mix in non-ISA accounts before falling back on ISA wrapper.
Are joint-account savings split for PSA purposes?
Yes - joint-account interest is split equally between the joint holders for PSA calculation purposes regardless of who originally deposited the funds. A married couple with a £200,000 joint cash savings account earning 4.5% interest receives £9,000 / year of interest, split £4,500 / £4,500 for tax purposes. Each spouse's £1,000 PSA (basic rate) shelters their £4,500; the remaining £3,500 each is taxable at the spouse's marginal rate. The 50/50 split is the default - couples can elect for a different split via the Form 17 declaration (Income and Capital Gains Tax (Joint Property) Regulations 1995). The election is most useful where one spouse is a basic-rate taxpayer and the other higher-rate, allowing more interest to be allocated to the basic-rate spouse with the larger PSA. Joint-account splitting is the standard tax-efficient route for married couples with substantial cash savings.
How does Scottish Income Tax interact with savings?
Income Tax on savings interest is RESERVED to Westminster - the Scottish Parliament does NOT have devolved powers over savings income tax. So savings interest is taxed at UK rates (20% / 40% / 45%) regardless of whether you are Scottish-tax-resident or rest-of-UK-tax-resident. The band determination (basic / higher / additional) uses your total income inclusive of Scottish Income Tax bands - so a Scottish-resident on £55,000 of employment income would be a higher-rate UK savings taxpayer with £500 PSA even though Scottish Income Tax on that employment income runs through a different 19% / 20% / 21% / 42% / 45% / 48% band structure. This is one of the few residual structural reservations under the Scotland Act 2016 devolution arrangements.
What happens when savings interest pushes me above the £100k taper?
The Personal Allowance taper at £100,000 of adjusted net income includes savings interest in the calculation. A taxpayer with £95,000 of employment income and £8,000 of savings interest has ANI of £103,000 - inside the taper band, losing £1,500 of PA (£3,000 over the threshold × 50%) and creating an effective 60% marginal rate on the £3,000 slice. The PSA at this band has also shifted from £1,000 (basic rate at total £95k) to £500 (higher rate at total £103k). Both effects compound, making savings interest at borderline incomes meaningfully more expensive than the headline rates suggest. Mitigation: ISA wrapper for the savings, pension salary sacrifice to reduce ANI below £100k, spouse-allocation of savings to the lower-rate spouse via joint account Form 17 election.
How do fixed-rate bonds and term deposits interact with the PSA?
Interest on fixed-rate bonds is typically taxable in the year it is "made available" to the saver, not the year the underlying deposit is held. Two common structures. (1) Annual interest paid into the saver's nominated current account each year: taxable in the year received. (2) Accumulating fixed-rate bonds where interest compounds inside the bond and is paid out at maturity: taxable in the year the bond matures, with the full multi-year interest charged in that single tax year. The accumulating structure can create a "lumpy" PSA problem - a 3-year accumulating bond paying out £4,500 of accumulated interest in year 3 absorbs the basic-rate £1,000 PSA in that single year, with £3,500 taxable. The annual-interest structure spreads the £1,500 / year across three years comfortably within the PSA. Specialist tax-planning consideration for higher-net-worth savers with bond portfolios.
Does the PSA apply to peer-to-peer lending interest?
Yes - peer-to-peer (P2P) lending interest is treated as savings interest for tax purposes and qualifies for the £1,000 / £500 / £0 PSA. The Innovative Finance ISA (IFISA) wrapper is available for P2P lending and provides full tax exemption equivalent to cash or stocks-and-shares ISAs. Major UK P2P platforms include Funding Circle, RateSetter (now defunct, transitioned to Metro Bank), Zopa (now banking), Assetz Capital. The P2P market has shrunk substantially since 2020 as several major platforms exited the retail-investor market, and current peer-to-peer interest is a smaller component of typical UK savings portfolios. For investors still holding P2P loans, the IFISA wrapper is generally the right choice; outside the IFISA, the £1,000 / £500 / £0 PSA still applies.
Related calculators and guides
- Personal Savings Allowance guide - full PSA framework and band-by-band detail.
- ISA allowance guide - £20,000 annual contribution and product types.
- ISA types guide - cash, stocks and shares, IF-ISA, LISA, Junior ISA.
- Dividend allowance guide - £500 separate allowance for dividend income.
- Personal Allowance guide - the £12,570 base layer.
- £100k tax trap guide - PA taper interaction with savings interest at high incomes.
- Salary calculator - integrate savings interest with employment income for total adjusted-net-income view.