If you've got money in a savings account, you might be wondering whether the taxman is about to take a bigger slice. The short answer: from 6 April 2027, the tax rates on savings interest are set to rise, and HMRC is sharpening how it tracks savings income.
This guide explains how tax on savings interest works right now, in the 2025/26 tax year, what the announced 2027 changes actually are, and the practical steps that keep more of your interest in your pocket. It's written for everyday savers, the self-employed who file a Self Assessment return, and retirees living partly on savings income.
We'll stick to what's confirmed on gov.uk and flag anything that's announced but not yet law, so you can plan with a clear head.
How does tax on savings interest work right now?
Most savings interest is taxable, but you've got a buffer before any tax is due. That buffer is the personal savings allowance (the amount of interest you can earn each year before tax kicks in), and it sits on top of your standard personal allowance.
For the 2025/26 tax year, the personal allowance (the amount of income you can earn before paying any income tax) is £12,570. If your total income, including savings interest, stays below that, you won't pay income tax at all.
Once you're above it, any savings interest over your personal savings allowance is taxed at your normal income tax rate. For 2025/26 those rates are 20% (basic), 40% (higher) and 45% (additional), per gov.uk.
Interest inside an ISA doesn't count towards any of this. ISA interest is tax-free and doesn't use up your personal savings allowance.
How much is the personal savings allowance for 2025/26?
Your personal savings allowance depends on the highest income tax band you fall into. The figures below are confirmed by HMRC and apply for the 2025/26 tax year.
| Income tax band | Tax-free savings interest (personal savings allowance) |
|---|---|
| Basic rate (20%) | £1,000 |
| Higher rate (40%) | £500 |
| Additional rate (45%) | £0 |
So a basic rate taxpayer can earn up to £1,000 of interest with no tax to pay. Go over the allowance and you pay tax on the excess at your usual rate.
Worth knowing: it's a rate-band test, not an income-only test. If higher rate income pushes you into the 40% band, your allowance drops to £500 even if most of your income is taxed at the basic rate.
How does HMRC collect tax on savings interest?
Banks and building societies already report the interest they pay you to HMRC each year. HMRC uses that information to pre-populate tax records, set PAYE tax codes and check Self Assessment returns, as set out in its guidance on interest returns.
How you actually pay depends on your situation:
- If you're employed or on a pension via PAYE, HMRC usually collects any tax owed on savings interest by adjusting your tax code. You often don't need to do anything.
- If you complete a Self Assessment tax return, you must declare all your taxable savings interest on that return and pay any tax due as part of your overall bill.
If you're not sure whether you owe anything, gov.uk's guide on tax on savings interest walks through how it's worked out.
What is changing for savings tax in 2027?
Two separate things are on the horizon. Both were announced at the Autumn Budget 2025, so treat them as announced policy rather than rates that already apply to your current return.
1. Savings interest tax rates are due to rise from 6 April 2027. The government has announced that the tax rates on savings income will go up by 2 percentage points across the board for the 2027/28 tax year. Legislation is to be introduced in the Finance Bill 2025-26, per the gov.uk policy paper.
| Band | Savings rate now (2025/26) | Announced rate from 6 April 2027 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
Because this is announced but not yet enacted, the detail could change before it becomes law. We'll update this post once the Finance Bill is passed.
2. Tighter ISA reporting and National Insurance number checks. From 6 April 2027, ISA managers must obtain a National Insurance number from investors who are eligible to have one before accepting a new subscription, as set out in the Individual Savings Account and Child Trust Funds (Amendment) Regulations 2025. Mandatory digital ISA reporting to HMRC is being phased in separately, with HMRC having postponed it to April 2028, per its tax-free savings newsletter. These changes help HMRC police ISA subscription limits; they don't change the tax-free status of ISA interest.
The headline takeaway is simple: HMRC's data is getting better, and the rate on taxable interest is going up. Both point in the same direction, which is to make tax-free wrappers like ISAs more valuable.
What does this mean if you're self-employed?
If you file a Self Assessment return, the rules themselves aren't changing: you already have to declare all your taxable savings interest, and you still will.
What's improving is HMRC's ability to cross-check. With cleaner data, a gap between what your bank reports and what you declare is easier to spot. So if you run your own business or work for yourself, accuracy on your return matters more than ever, both for savings interest and everything else.
If you'd rather not second-guess it, our self-assessment service handles the whole return, and sole traders and contractors can find tailored support on our niche pages. You can also sense-check your overall position with our self-employed tax calculator.
How can you reduce tax on your savings interest?
A few legitimate, well-established options can cut or remove the tax on your interest:
- Use an ISA. You can pay up to £20,000 into ISAs each tax year, and interest earned inside them is tax-free and doesn't touch your personal savings allowance. The £20,000 limit is frozen until 5 April 2031, per Budget 2025.
- Consider Premium Bonds. Premium Bond prizes from NS&I are tax-free. You can hold up to £50,000. There's no guaranteed return, so weigh that against a fixed savings rate.
- Split savings with a spouse or civil partner. If one of you is a non-taxpayer or basic rate taxpayer and the other is a higher rate taxpayer, holding savings in the lower earner's name can make better use of both personal savings allowances. Moving money between spouses is generally tax-free.
- Watch your tax band. Because the personal savings allowance shrinks as you move from basic to higher rate, a pay rise or extra dividend income can quietly reduce your tax-free interest.
With the rate rise coming in 2027, reviewing where your savings sit now, rather than at the last minute, is the sensible move.
Illustrative example: how much tax would you pay?
Illustrative example. These are hypothetical figures to show the method, not real customers.
Priya, a basic rate taxpayer, earns £1,250 in savings interest in 2025/26.
Her personal savings allowance is £1,000, so £250 is taxable. At the basic rate of 20%, that's £50 in tax (£250 x 20%).
If the same £250 were taxed in 2027/28 at the announced 22% rate, the tax would be £55 (£250 x 22%). A £5 difference here, but it scales up with larger balances.
Tom, a higher rate taxpayer, earns £1,250 in savings interest in 2025/26.
His personal savings allowance is only £500, so £750 is taxable. At the higher rate of 40%, that's £300 in tax (£750 x 40%).
At the announced 2027/28 higher rate of 42%, the same £750 would cost £315 (£750 x 42%).
The ISA comparison. Had either Priya or Tom held that money in an ISA, the interest would have been tax-free, whatever their band, and it wouldn't appear on a tax return at all.
Ready to get your tax right?
Savings interest is easy to overlook until HMRC's data matching catches it. If you'd like a clear picture of what you owe, or help filing an accurate Self Assessment return, book a free 20-minute call with a Zmartly accountant. We'll tell you straight what applies to you.
FAQs
Do I have to pay tax on my savings in the UK?
It depends on how much interest you earn and your tax band. For 2025/26, basic rate taxpayers can earn up to £1,000 of interest tax-free, higher rate taxpayers £500, and additional rate taxpayers nothing. You pay tax on any interest above your personal savings allowance at your usual income tax rate.
How does HMRC collect tax on savings interest?
If you're employed or on a PAYE pension, HMRC usually adjusts your tax code to collect what you owe. If you complete a Self Assessment return, you declare your taxable savings interest on the return and pay it as part of your overall bill.
When do the new savings tax rates start?
The government announced at the Autumn Budget 2025 that savings income tax rates will rise by 2 percentage points from 6 April 2027 (the 2027/28 tax year), with legislation in the Finance Bill 2025-26. It's announced policy, not yet enacted, so the detail could still change.
What are the announced savings tax rates from April 2027?
From 6 April 2027, the announced rates are 22% for basic rate, 42% for higher rate and 47% for additional rate taxpayers, up 2 percentage points from the current 20%, 40% and 45%.
Are ISAs affected by the 2027 changes?
ISA interest stays tax-free. From 6 April 2027, ISA managers must obtain an eligible investor's National Insurance number before accepting a new subscription, and mandatory digital ISA reporting follows from April 2028. This is about policing subscription limits, not taxing ISA interest. The £20,000 annual ISA limit is set to remain frozen until 5 April 2031.
How do I pay tax on savings interest if I'm self-employed?
You declare all your taxable savings interest on your Self Assessment return and pay any tax due with your overall bill. The rule isn't changing, but HMRC's improving data makes accurate declarations more important.
