Do I have to pay tax on my savings interest?
Three separate allowances stack before any tax is due on interest, and most people never reach the end of them — but rising rates have pushed more savers over the line.
- Difficulty
- beginner
- Time
- 12 min
- Read
- 3 min
Short answer
Interest is taxable income, but three things can shelter it: the personal allowance if your other income is low, the starting rate for savings, and the Personal Savings Allowance, which differs by tax band and is nil for additional-rate taxpayers. Banks report interest to HMRC automatically. Tax due is usually collected by adjusting your tax code rather than by a tax return.
For roughly fifteen years this question barely arose, because rates were low enough that almost nobody exceeded the allowances. That changed, and a large number of ordinary savers received unexpected tax code adjustments as a result. Nothing about the rules changed — the interest did.
Step by step
- Identify which interest counts.Interest from bank and building society accounts, credit union accounts, corporate and government bonds, and peer-to-peer lending. Interest inside an ISA does not count and never has to be declared.
- Check whether your personal allowance covers it.If your total income including interest is within the personal allowance, no income tax is due on any of it. This is the position for many people with low earnings, part-year work or a small pension.
- Check the starting rate for savings.A band of savings income taxed at zero per cent, available where non-savings income is low. It reduces as other income rises and disappears entirely above a modest level. GOV.UK states the current band and taper.
- Apply the Personal Savings Allowance.A further amount of interest taxed at zero per cent, larger for basic-rate taxpayers than for higher-rate, and nil for additional-rate taxpayers. It is an allowance, not a deduction — interest above it is taxed at your normal rate.
- Remember the banks report it for you.UK banks and building societies send interest figures to HMRC after the tax year ends. You do not usually need to tell them, and interest is paid gross rather than with tax deducted.
- Expect a tax code adjustment rather than a bill.Where you are employed or on a pension, HMRC normally collects tax on interest by changing your tax code, often the following year. That is why a code can change without your job changing.
- Check the figures HMRC used.Coding notices show the estimated interest they have assumed. Estimates are based on the previous year, so an unusual year — a one-off bond maturing, an account closed — can produce a wrong assumption that is worth correcting.
- Watch fixed-term accounts.Where interest is not accessible until maturity, it is generally taxable in the year it becomes available rather than accruing year by year. A multi-year fixed bond can therefore land as a single large amount in one tax year.
- Consider whether joint accounts split correctly.Interest on a joint account is normally treated as belonging half to each holder, which effectively doubles the allowances available to a couple.
Questions people ask
Do I have to declare savings interest to HMRC?
Usually not. UK banks report it automatically, and HMRC collects any tax due through your tax code. You would declare it on a return only if you already file one, or if HMRC asks.
Is ISA interest taxable?
No. Interest and gains inside an ISA are outside income tax and capital gains tax entirely, and never need to be reported.
Why has my tax code changed after I opened a savings account?
HMRC has estimated taxable interest and adjusted the code to collect the tax through your pay or pension. Check the coding notice — the estimate is based on past data and is sometimes wrong.