When you file your income tax return at the end of each financial year, you need to declare all your sources of income, including any income earned from investments. If you have money in a savings account that has earned interest in the previous financial year, you’ll also need to declare this amount and pay tax on savings interest – unless it’s in an ISA, where you don’t pay tax on any interest you earn.
At what rate is the interest taxed?
The amount of tax that applies to the interest you earn on your savings account will be determined by your overall taxable income. The total income you earn each year determines the tax rate you must pay, and HM Revenue & Customs’ (HMRC’s) tax rates for the 2020-2021 financial year, which you can see below.
England and Wales
Band
Taxable income
Tax rate
Personal Allowance
Up to £12,500
0%
Basic rate
£12,501 to £50,000
20%
Higher rate
£50,001 to £125,140
40%
Additional rate
over £125,140
45%
Scotland
Band
Taxable income
Scottish tax rate
Personal Allowance
Up to £12,500
0%
Basic rate
£12,501 to £14,585
19%
Higher rate
£14,586 to £25,158
20%
Additional rate
£25,159 to £43,430
21%
Higher rate
£43,431 to £150,000
41%
Top rate
over £150,000
46%
How much money can you have in your savings account without being taxed?
The table below illustrates how much you can earn before paying tax on your savings interest.
Tax rate
Annual income (not from savings)
Tax-free interest on savings
No tax
£0 to £12,570
Earn up to £5,000 tax-free through the starting rate for savings
Basic rate taxpayer, low income
£12,571 to £17,570
Earn up to £5,000 tax-free through the starting rate for savings, as well as up to £1,000 tax-free with the PSA
Basic rate taxpayer
£17,571 to £50,270
Earn up to £1,000 in savings interest tax-free through the PSA
Higher rate taxpayer
£50,271 to £125,140
Earn up to £500 in savings interest tax-free through the PSA
Additional rate taxpayer
Over £125,140
No savings interest allowance
Why do I need to declare interest?
Under its rules regarding investment income, HMRC requires all UK residents to declare any interest they receive as income. This is because you’ve earned that money, in a similar way to you earning your salary or wages. And you must pay tax on any money earned throughout the financial year.
What interest do I pay tax on?
You need to declare all money you’ve earned in your tax return, including the following:
Interest earned from foreign sources (although tax offsets may be available).
Money you’ve earned from selling investments like shares.
Are there any tax-free savings accounts?
Yes – an individual savings account (ISA) is tax-free. That means any savings interest (or income) you earn from an ISA won’t count towards your personal savings allowance and you won’t have to pay tax on any of it.
However, you can only pay into one ISA each tax year and you cannot exceed your annual ISA allowance. In the current 2024/2025 tax year, this stands at £20,000. This allowance can be split across 4 different types of ISA, including:
A cash ISA
A stocks and shares ISA
An innovative finance ISA
A lifetime ISA (note that you can only pay in up to £4,000 per year into a lifetime ISA).
Alternatively, you can pay your full £20,000 allowance into just one type of ISA.
How do I report my interest earned?
You should declare the interest you earn on your annual income tax return. Remember, you don’t need to pay tax on the amount you deposit into your account – it is only the interest you earned on that money that is subject to tax. If you need help declaring your interest and claiming eligible tax deductions, get in touch with an accountant.
How do you pay tax on savings interest?
This will depend on your situation. If you are employed or you receive a pension, you don’t need to do anything. HMRC will automatically adjust your tax code to claim back the tax. However, if you’re self-employed, you will need to report how much interest you’ve earned through your self-assessment tax return.
If you believe you’ve paid too much tax on your savings, you can claim a refund through your self-assessment tax return if you complete one, or by filling in a form R40. You must reclaim your tax within 4 years of the end of the relevant tax year.
What about interest earned in a joint account?
HMRC assumes that joint account holders are equal owners of an account and requires them to pay tax on the interest accordingly. So, for example, if you have a joint savings account with your spouse, the interest paid will be split equally between the two account holders – 50% each. When it comes to completing a tax return, each partner or spouse only declares their share of the interest earned on the joint savings account.
What about interest earned on a child’s savings account?
Taxes will apply to a child’s savings account in two instances. First, if they earn more than their personal allowance, such as from a fund in their name. Second, if they earn more than £100 a year in interest from money given by their parents or legal guardians. The thinking behind this is to stop parents using their children as a tax-free extra allowance. This rule doesn’t apply if the money is given by another relative or a friend.
Bottom line
Knowing when you might be taxed on savings interest is essential no matter what the circumstances. But it’s even more important as the base rate continues to rise and savings accounts become more competitive. Rising rates mean it could become much easier to go over your personal savings allowance threshold, particularly if you’re a higher rate taxpayer, in which case moving some of your savings into a tax-free ISA could be worth considering.
Savings income can include interest earned from bank or building society accounts, income from government and company bonds, interest from peer-to-peer lending and certain types of life annuity payments.
No, any income you earn from an ISA won't count towards your personal savings allowance.
Who is most likely to be researching tax on savings?
Finder data suggests that men aged 65+ are most likely to be researching this topic.
Response
Male (%)
Female (%)
65+
15.36%
8.17%
55-64
11.22%
5.88%
45-54
15.14%
7.19%
35-44
9.80%
5.56%
25-34
6.97%
6.32%
18-24
4.68%
3.70%
Source: Finder sample of 918 visitors using demographics data from Google Analytics
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Alison Banney is the banking and investments editor at Finder. She has written about finance for over six years, with her work featured on sites including Yahoo Finance, Money Magazine and Dynamic Business. She has previously worked at Westpac, and has written for several other major banks including BCU, Greater Bank and Gateway Credit Union. Alison has a Bachelor of Communications from Newcastle University, with a double major in Journalism and Public Relations. She has ASIC RG146 compliance certificates for Financial Advice, Securities and Managed Investments and Superannuation. Outside of Finder, you’ll likely find her somewhere near the ocean. See full bio
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