Do I pay tax on my savings?

Do I pay tax on my savings?  

Understanding whether you'll pay tax on your savings interest helps you make confident savings decisions.

Some savers use ISAs to earn interest without worrying about paying tax on the interest they earn. Understanding the ISA rules and allowances can help you decide what's right for you.

Do you pay tax on savings interest?

Savings tax becomes relevant if you earn a certain amount of interest.

It usually applies to people with larger savings balances or higher incomes (particularly when interest rates are higher).

Lots of people don't pay tax on their savings at all. 

However, if the interest you earn exceeds your Personal Savings Allowance, you may need to pay tax.

It all depends on your income and the type of savings account you use.

What is the Personal Savings Allowance (PSA)?

Your Personal Savings Allowance (PSA) is the amount of savings interest you can earn each tax year without paying tax.

Your PSA depends on your income tax band:  

• Basic rate taxpayers (20%) can earn up to £1,000 in interest tax-free. 
• Higher rate taxpayers (40%) can earn up to £500 in interest tax-free.
• Additional rate taxpayers (45%) don't receive a Personal Savings Allowance.  

If you don’t pay income tax at all, you may able to earn as much as £18,570 in savings interest before paying any tax. This includes your PSA plus other allowances.  

Do I pay tax on my Individual Savings Account (ISA)?

No; ISAs are tax-free. 

You won't pay tax on interest you earn on savings in an ISA; as long as you stay within your annual ISA allowance.  

For 2025/2026, the ISA allowance is £20,000, which applies to all types of ISAs.

Lots of savers use ISAs as a way to manage or reduce the amount of tax they pay on their savings.

ISAs can be particularly helpful if you're close to exceeding your Personal Savings Allowance.  

How is tax on savings paid?

If you earn more interest than your allowance allows, HMRC usually collects the tax you owe automatically. In most cases:

• HMRC adjusts your tax code based on the ineterest you earned the previous tax year.
• The tax you owe is collected through your PAYE code, rather than deducted from your savings account.

If you complete a Self-Assessment tax return, you'll need to declare any taxable savings interest as part of that process.  

Keeping track of your savings

If you have savings across multiple accounts or providers, it’s important to keep track of:

• How much interest you’re earning.
• Whether you’re close to your PSA.
• Whether using tax-free savings options could help.

Understanding how savings tax works can help you plan ahead as you approach the end of the tax year.