Is savings interest automatically taxed by banks in 2025/26?

No. Since 2016, UK banks and building societies no longer deduct tax at source from savings interest. Interest is paid gross. You are responsible for declaring taxable interest on a Self Assessment return if you owe tax on it. HMRC may also adjust your PAYE tax code to collect savings tax through your salary for smaller amounts.

What types of savings income are covered by the PSA?

The Personal Savings Allowance covers interest from: bank and building society accounts, cash ISAs are already tax-free and don't use the PSA, NS&I accounts (except Premium Bond prizes which are always tax-free), peer-to-peer lending interest, credit union accounts, and most other interest-paying accounts. Dividends are not savings income and use the separate dividend allowance.

Can I claim the starting rate for savings if I have a salary?

Only if your salary (or other non-savings income) is below £17,570. For every £1 your non-savings income exceeds £12,570, your £5,000 starting rate band reduces by £1. So at £17,570 non-savings income, the starting rate band is zero. Most workers with a full-time salary will not benefit from the starting rate for savings.

Do I need to file a Self Assessment return for savings interest?

If your untaxed savings interest exceeds your PSA, you may need to file a Self Assessment return or notify HMRC. If you already file Self Assessment for other reasons, declare all savings interest regardless of amount. HMRC may adjust your PAYE code to recover small amounts of savings tax — but if the underpayment exceeds a certain threshold, Self Assessment becomes mandatory.

What is the 'savings starter rate band' and who benefits from it?

The savings starter rate band is a 0% tax band of up to £5,000 on savings income. It benefits people with very low non-savings income — typically those who are retired or work part-time with income below £17,570. A person with no salary earning £5,000 in savings interest would pay zero savings tax (£12,570 PA + £5,000 starting rate covers £17,570). This is particularly valuable for retirees with modest pension income.

How does savings tax interact with the marriage allowance?

If you transfer 10% of your personal allowance to a spouse via Marriage Allowance (transferring £1,260), your own personal allowance reduces to £11,310. This means your starting rate band availability changes: the starting rate begins being absorbed once non-savings income exceeds £11,310. The Marriage Allowance can affect when your savings become taxable, so model both scenarios.

Are fixed-term bonds and cash ISAs treated differently for tax?

Fixed-term bonds (e.g. 1, 2, 3-year bonds with a bank) accrue interest that is typically taxable in the tax year it is credited or made available to you — even if it's rolled over. Check your bond terms. Cash ISA interest is always tax-free. This distinction matters: a 2-year fixed bond outside an ISA creates a savings tax liability when the interest is paid; a cash ISA version does not.

Savings Income Tax Calculator 2025/26 | Personal Savings Allowance

Q: Does savings interest in an ISA use my PSA?

No. Interest earned within a Cash ISA (or stocks and shares ISA) is completely tax-free and does not count toward or reduce your Personal Savings Allowance. ISA interest is entirely outside the tax system. Only interest from non-ISA accounts counts toward your PSA.

Q: What happens if my savings interest exceeds the PSA?

If your savings interest exceeds your PSA (£1,000 basic rate, £500 higher rate), the excess is taxable at your income tax rate: 20% basic, 40% higher, or 45% additional rate. You need to declare this on a Self Assessment return or HMRC may adjust your tax code. Banks do not deduct tax automatically.

Q: Are Premium Bond prizes taxable?

No. Premium Bond prizes are always completely tax-free. They do not count toward your Personal Savings Allowance and do not need to be declared on a tax return. This makes Premium Bonds particularly attractive for higher and additional rate taxpayers who have a smaller or zero PSA.

Calculate Tax on Your Savings Interest

Enter your gross savings interest (before any tax), your other income, and your tax band. The calculator applies the starting rate for savings, Personal Savings Allowance, and taxes any remaining interest at your marginal rate.

Gross Savings Interest (£)

Other Non-Savings Income (salary, pension) (£)

Tax Band

Your Savings Tax Breakdown 2025/26

Based on 2025/26 HMRC rates. Estimates only — bank interest is paid gross; you must declare tax owed to HMRC.

£0
Starting Rate for Savings Used

£0

Personal Savings Allowance Used

£0

Taxable Interest

£0

Tax on Savings

0%
Effective Savings Tax Rate

£0

Net Interest After Tax

£0

Starting Rate Band Available

£0

Your PSA Entitlement

Marginal Rate on Taxable Portion

How Savings Tax Works in 2025/26

Savings interest is taxed after non-savings income fills the personal allowance and tax bands. There are three potential tax-free reliefs before any savings interest becomes taxable:

Personal allowance (£12,570): If your non-savings income does not fully use your personal allowance, the remainder offsets savings income first
Starting rate for savings (0%, up to £5,000): Available only if non-savings income is below £17,570. Available amount = £5,000 − max(0, non-savings income − £12,570)
Personal Savings Allowance: £1,000 (basic rate), £500 (higher rate), £0 (additional rate)

Any interest above all three reliefs is taxed at 20% (basic), 40% (higher), or 45% (additional rate).

Example — £30,000 salary, £3,000 savings interest (basic rate taxpayer):
Starting rate available: 0 (salary above £17,570)
PSA: £1,000 (basic rate taxpayer)
Taxable interest: £3,000 − £1,000 = £2,000
Tax: £2,000 × 20% = £400 — declare via Self Assessment

Example — £10,000 pension income, £6,000 savings interest:
Starting rate available: £5,000 − (£10,000 − £12,570) = £5,000 (full band — non-savings below threshold)
PA remaining for savings: £12,570 − £10,000 = £2,570
Interest covered by PA: £2,570; remaining: £3,430
Starting rate covers: £3,430 (within £5,000 limit)
Tax: £0 — all £6,000 interest is tax-free

2025/26 Savings Tax Reference

Taxpayer Type	Personal Savings Allowance	Tax Rate on Excess
Non-taxpayer / Starting rate	Starting rate 0% up to £5,000 + PSA £1,000	0% (starting rate), then 20% basic
Basic rate taxpayer	£1,000	20%
Higher rate taxpayer	£500	40%
Additional rate taxpayer	£0	45%

Starting rate for savings (0%) available only when non-savings income is below £17,570. For each £1 of non-savings income above £12,570, the £5,000 starting rate band reduces by £1.

Frequently Asked Questions

What is the Personal Savings Allowance for 2025/26?

The Personal Savings Allowance (PSA) for 2025/26 is £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers (income above £125,140). The PSA means this amount of savings interest is completely tax-free each year, regardless of which account it comes from (as long as it's not an ISA, which is already exempt).

What is the starting rate for savings?

The starting rate for savings is 0% on up to £5,000 of savings income, available only when non-savings income is below £17,570. For every £1 of non-savings income above £12,570, the £5,000 band reduces by £1. At £17,570 non-savings income, the entire starting rate band is used up. This primarily benefits retirees and low-income individuals.

Is savings interest automatically taxed by banks?

No. Since 2016, UK banks and building societies pay savings interest gross (without deducting tax). You are responsible for declaring any taxable interest via Self Assessment or by contacting HMRC. HMRC may adjust your PAYE code to collect small amounts, but for larger savings tax liabilities, Self Assessment is required.

Does savings interest in an ISA use my PSA?

No. Interest in a Cash ISA or a Stocks and Shares ISA is completely tax-free and does not count toward your Personal Savings Allowance. Only interest from non-ISA accounts (regular savings accounts, fixed bonds, etc.) uses the PSA. This is why Cash ISAs are particularly attractive when interest rates are high.

What happens if my savings interest exceeds the PSA?

The excess above your PSA is taxable at your income tax rate: 20% basic, 40% higher, or 45% additional. You should declare this on a Self Assessment return or HMRC will adjust your tax code if the amount is small enough to collect through PAYE. Keep records of all savings interest received.

Can I claim the starting rate for savings if I have a full-time salary?

Only if your total non-savings income is below £17,570. With a full-time job earning even the National Living Wage (around £24,000/year), your non-savings income far exceeds £17,570, so the starting rate band is fully used up and not available for your savings interest. The starting rate primarily benefits part-time workers, those on very low incomes, and retirees.

Are Premium Bond prizes taxable?

No. Premium Bond prizes are always completely tax-free, do not count toward your PSA, and do not need to be declared on a tax return. This makes Premium Bonds particularly attractive for higher and additional rate taxpayers who have a reduced or zero PSA — any return from bonds is entirely free of UK tax.

Do I need to file Self Assessment for savings interest?

If untaxed savings interest exceeds your PSA, you may need to file Self Assessment or notify HMRC. If you already file Self Assessment (e.g. for self-employment or rental income), declare all savings interest. HMRC can adjust PAYE codes to recover modest savings tax, but larger amounts typically require Self Assessment. Deadlines: 31 October (paper), 31 January (online).

What is the effective tax on savings for a higher rate taxpayer?

A higher rate taxpayer receives £500 PSA, then pays 40% on any remaining taxable interest. On £2,000 total interest: £500 PSA covers the first £500; remaining £1,500 × 40% = £600 tax. Effective rate: 30% on the total £2,000. For additional rate taxpayers (no PSA), all £2,000 is taxable at 45% = £900.

Does savings interest affect my eligibility for Child Benefit?

Savings interest counts toward your adjusted net income for the High Income Child Benefit Charge (HICBC). If you or your partner earns over £60,000 (the new 2024/25 threshold), savings interest could push you into the charge zone or increase the clawback. Consider using Cash ISAs to shelter interest outside your adjusted net income calculation.

Are fixed-term bonds taxable when interest is credited?

Generally yes — interest on fixed-term bonds is taxable in the tax year it is credited to your account or made available to you, even if you cannot access the capital. If a 2-year bond pays all interest at maturity, the full interest is taxable in the year of maturity. This can cause an unexpectedly large savings tax bill in one year — plan ahead if you hold maturing fixed bonds.

Can I use the marriage allowance to reduce savings tax?

Not directly — the marriage allowance transfers £1,260 of personal allowance between spouses, which adjusts your income tax position. However, if your non-savings income is already well below the personal allowance, or if your spouse has substantial savings interest, keeping savings in the name of the lower-earning spouse is often more effective than using the marriage allowance. Consider which spouse holds savings accounts to minimise combined tax.

Mustafa Bilgic
Financial Content Writer | Savings & Tax Specialist
Updated: 10 March 2026 | Published: 1 January 2025

Savings Income Tax Calculator 2025/26

Calculate Tax on Your Savings Interest

Your Savings Tax Breakdown 2025/26

How Savings Tax Works in 2025/26

2025/26 Savings Tax Reference

Frequently Asked Questions

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