Savings Interest Tax Calculator

The Personal Savings Allowance (PSA) lets you earn tax-free interest each year: £1,000 for basic-rate taxpayers (20%), £500 for higher-rate taxpayers (40%), and £0 for additional-rate taxpayers (45%). Interest above the PSA is taxed at your marginal income tax rate. The PSA applies to interest from bank and building society accounts, NS&I (except Premium Bond prizes which are always tax-free), and peer-to-peer lending.

The calculation totals all taxable interest across your savings accounts, subtracts the PSA for your tax band, and applies the appropriate tax rate to the excess. Your tax band is determined by total income including salary, pension, rental income, and dividends. If adding savings interest pushes you from basic into higher rate, the portion in each band is taxed separately. ISA interest is excluded entirely as it does not count toward the PSA threshold.

The starting rate for savings provides an additional £5,000 tax-free band for those with non-savings income below £17,570. For every £1 of non-savings income above £12,570, the starting rate band reduces by £1. Someone earning £14,000 salary gets a £3,570 starting rate band (£17,570 - £14,000) plus the £1,000 PSA, allowing £4,570 of interest tax-free. Retirees with only State Pension income often benefit significantly from this starting rate band.

Personal Savings Allowance 2026/27. Basic-rate taxpayers (income £12,570-£50,270): first £1,000 of savings interest tax-free. Higher-rate (£50,271-£125,140): £500 tax-free. Additional-rate (over £125,140): £0 — all interest taxed at marginal rate. Above PSA, interest taxed at marginal income rate: 20% basic, 40% higher, 45% additional.

Starting Rate for Savings — for low earners. If non-savings income is below £17,570 (PA £12,570 + £5,000 Starting Rate Band), part of savings interest is tax-free up to £5,000. Useful for: retirees living on small pension, students with savings, anyone with low/no earned income. £5,000 + PSA £1,000 = £6,000 of savings interest tax-free for low earners. Calculator considers this automatically.

ISA wrapper — all interest tax-free. Any interest within a Cash ISA is completely tax-free, regardless of amount. Annual ISA allowance £20,000. For higher/additional-rate taxpayers with significant savings (above PSA), ISAs are essential — pre-tax saver of 40-45% on every £1 interest. Compound effect over years: a higher-rate taxpayer saving £20k/year in a 5% ISA vs taxable account saves £2k+/year in tax.

Banks report interest to HMRC. Since 2016, UK banks must report all interest paid to HMRC (Common Reporting Standard). HMRC pre-populates Self Assessment with this data. Don't omit savings interest from your return — discrepancies trigger automatic compliance checks. For high earners or those with savings income over PSA, register for Self Assessment if not already (avoid 'failure to notify' penalties).