As your savings grow, so does the interest, and people start asking whether they need to pay tax on it. In fact, most people get some of their interest tax-free.
What counts as savings interest?
Interest from bank and building society accounts counts as savings interest.
Interest in an ISA is completely tax-free and doesn't use any of the allowances below.
Three tax-free allowances: see which you can use
1. Personal Allowance (£12,570)
If your wages and other income don't use up all of your £12,570 Personal Allowance, the rest can cover interest.
2. Starting rate for savings (up to £5,000)
You only get it if your other taxable income (not counting interest or dividends) is less than £17,570.
It goes down by £1 for every £1 of other income above your Personal Allowance.
3. Personal Savings Allowance
Your tax rate
Tax-free interest each year
Basic rate
£1,000
Higher rate
£500
Additional rate
£0
Examples (from GOV.UK)
Wages of £16,000 and interest of £200
Wages above the Personal Allowance: £16,000 − £12,570 = £3,430
Starting rate for savings left: £5,000 − £3,430 = £1,570
The £200 of interest is within the £1,570, so no tax to pay
A basic rate taxpayer with £1,300 of interest
The first £1,000 is tax-free
The other £300 is taxed at 20%, £60 in total
Readers ask: I'm a student with no job and less than £1,000 of interest a year. Do I pay tax?
If you have no other taxable income in the UK, your Personal Allowance, starting rate for savings and Personal Savings Allowance can all cover your interest, so less than £1,000 a year usually means no tax. Money your parents give you for living costs usually isn't your income. If you have other income, such as a part-time job or income from abroad, count it too.
How the tax is paid
Your bank doesn't take tax off. After the tax year ends, it tells HMRC how much interest you earned.
If you're employed: HMRC usually collects the tax through your tax code, or adjusts your code in advance based on estimated interest.
If you already send a Self Assessment return: include the interest there.
If your interest is over £10,000: you must send a Self Assessment return.
If you're not employed and don't send a return: HMRC may send you a Simple Assessment letter saying what you owe and how to pay.
If you owe tax but haven't heard: if you haven't had a letter by 31 March after the end of the tax year, contact HMRC.
Changes coming
From 6 April 2027, tax rates on savings interest rise by 2 percentage points: 22% basic, 42% higher and 47% additional (Finance Act 2026). This applies across the UK, including Scotland.
Cash ISA limit: the total ISA allowance for 2026 to 2027 is £20,000. It's now law that from 6 April 2027, if you're 64 or under at the end of the tax year, you can put up to £12,000 a year into cash ISAs, within the same £20,000 total. People aged 65 and over aren't affected.
Sources checked: 1 October 2026 · Tax year: 2026 to 2027 · Sources are official GOV.UK and legislation.gov.uk pages.
This is general information, not tax advice for your situation. How it applies depends on your full circumstances.