Tax on Savings & Interest

Can you pay tax on savings? 

You are not normally taxed simply because you have money saved. 

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However, interest earned on savings can be taxable. 

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Interest is the return paid by a bank or other savings provider on money you hold with them. 

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Personal Savings Allowance 

How much savings interest you can receive tax-free through the Personal Savings Allowance depends on your Income Tax band: 

• basic-rate taxpayer: £1,000 

• higher-rate taxpayer: £500 

• additional-rate taxpayer: £0 (GOV.UK) 

 

Starting rate for savings 

Some people with relatively low non-savings income can also qualify for the starting rate for savings, which can apply a 0% rate to up to £5,000 of savings income. 

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The amount available depends on your other income, so not everyone receives the full £5,000. (GOV.UK) 

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What about ISAs? 

Interest and eligible investment returns inside tax-free accounts such as ISAs do not count towards your Personal Savings Allowance. (GOV.UK) 

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Simple example 

If you save £5,000, you are not taxed just because you hold that £5,000. 

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It is the interest earned from it that may be relevant for tax. 

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Key takeaway 

Saving money does not automatically create a tax bill. The important issue is how much taxable interest you receive and which allowances apply.