What is UK Savings Interest Tax Calculator?
▾
In the UK, interest earned on savings held outside an ISA is generally subject to income tax, but there are two important allowances that protect a significant amount of savings interest from tax. The Personal Savings Allowance (PSA) allows basic rate taxpayers to earn up to £1,000 of savings interest tax-free per year, and higher rate taxpayers up to £500 per year. Additional rate taxpayers (income above £125,140) receive no PSA at all. On top of the PSA, there is a Starting Rate for Savings of 0% on up to £5,000 of savings income — but this only applies when total income (excluding savings interest) is below £17,570 (the personal allowance of £12,570 plus £5,000). As earned income increases above £12,570, the £5,000 starting rate band is reduced pound for pound. Interest earned within an ISA (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, or Lifetime ISA) is always completely tax-free, regardless of the amount. Interest earned from Premium Bonds is also tax-free. This calculator shows how much tax, if any, is due on savings interest based on your total income level.
DigiCalcs delivers precision-engineered tools for engineers and STEM professionals.
Formula
▾
Savings interest tax = max(0, interest - PSA - starting rate allowance) × applicable tax rate; PSA = £1,000 (basic), £500 (higher), £0 (additional rate)Variable Legend
▾
| Symbol | Name | Unit | Description |
|---|---|---|---|
| SR | Starting rate allowance | £ | Up to £5,000 at 0% if non-savings income < £17,570 |
How to UK Savings Interest Tax Calculator
▾
- 1Determine your total income from all sources (salary, self-employment, rental income, etc.) excluding savings interest
- 2Identify your marginal income tax band: basic rate (income £12,570-£50,270), higher rate (£50,270-£125,140), or additional rate (above £125,140)
- 3Apply your Personal Savings Allowance: £1,000 if basic rate taxpayer, £500 if higher rate, £0 if additional rate
- 4Check whether the Starting Rate for Savings applies: if total non-savings income is below £17,570, you may have some 0% savings rate available (£5,000 minus the excess income above £12,570)
- 5Savings interest above the PSA and any starting rate allowance is taxed at your savings income rate: 20% (basic), 40% (higher), 45% (additional)
- 6ISA interest is always tax-free — exclude it from all calculations
- 7Banks and building societies now automatically report interest paid to HMRC; if you owe tax, HMRC may collect it via a PAYE code adjustment or require Self Assessment
Worked Examples
▾
£800 < £1,000 PSA for basic rate taxpayers. No tax due.
A basic rate taxpayer with £800 of savings interest pays no tax as it falls within the £1,000 Personal Savings Allowance.
£2,500 - £1,000 PSA = £1,500 taxable × 20% = £300 tax due.
The first £1,000 of savings interest is covered by the PSA. The remaining £1,500 is taxed at the basic rate of 20%.
£1,200 - £500 PSA = £700 taxable × 40% = £280 tax due.
Higher rate taxpayers have only a £500 PSA. The remaining £700 of interest is taxed at 40%.
Starting rate applies to income just above personal allowance. It reduces as earned income rises.
Non-savings income of £13,000 is £430 above the £12,570 personal allowance, reducing the 0% starting rate band from £5,000 to £4,570. Combined with the £1,000 PSA, almost all of the £6,000 interest is tax-free.
Real-World Applications
▾
Savers with large cash deposits calculating how much tax they owe on interest in a high-rate environment, representing an important application area for the Uk Savings Interest Tax in professional and analytical contexts where accurate uk savings interest tax calculations directly support informed decision-making, strategic planning, and performance optimization
Retirees with modest incomes checking whether they qualify for the starting rate for savings allowance, representing an important application area for the Uk Savings Interest Tax in professional and analytical contexts where accurate uk savings interest tax calculations directly support informed decision-making, strategic planning, and performance optimization
Higher-rate taxpayers deciding whether to move savings into ISAs to avoid the 40% rate on interest above the £500 PSA, representing an important application area for the Uk Savings Interest Tax in professional and analytical contexts where accurate uk savings interest tax calculations directly support informed decision-making, strategic planning, and performance optimization
Married couples optimising which partner holds savings accounts to minimise household savings tax, representing an important application area for the Uk Savings Interest Tax in professional and analytical contexts where accurate uk savings interest tax calculations directly support informed decision-making, strategic planning, and performance optimization
Financial advisers calculating the ISA vs non-ISA breakeven for clients with varying income levels, representing an important application area for the Uk Savings Interest Tax in professional and analytical contexts where accurate uk savings interest tax calculations directly support informed decision-making, strategic planning, and performance optimization
Special Cases
▾
Marriage and Savings Tax
In the Uk Savings Interest Tax, this scenario requires additional caution when interpreting uk savings interest tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk savings interest tax calculations fall into non-standard territory.
Offshore Savings Accounts
In the Uk Savings Interest Tax, this scenario requires additional caution when interpreting uk savings interest tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk savings interest tax calculations fall into non-standard territory.
Fixed-Term Bonds
In the Uk Savings Interest Tax, this scenario requires additional caution when interpreting uk savings interest tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk savings interest tax calculations fall into non-standard territory.
UK Savings Interest Tax Allowances 2024-25
▾
| Taxpayer Type | Personal Savings Allowance | Tax Rate on Excess |
|---|---|---|
| Basic rate (income £12,571-£50,270) | £1,000 | 20% |
| Higher rate (income £50,271-£125,140) | £500 | 40% |
| Additional rate (income above £125,140) | £0 | 45% |
| Starting rate for savings (non-savings income < £17,570) | Up to £5,000 at 0% | — |
| ISA interest (any type) | Unlimited | 0% (always tax-free) |
| Premium Bond prizes | Unlimited | 0% (always tax-free) |
Frequently Asked Questions
▾
How is savings interest taxed in the UK?
The Personal Savings Allowance (PSA) lets basic rate taxpayers earn £1,000 in savings interest tax-free, higher rate taxpayers £500, and additional rate taxpayers get £0 PSA. Interest above the PSA is taxed at your marginal income tax rate (20%, 40%, or 45%). Cash ISAs are completely tax-free regardless of amount. Banks no longer deduct tax at source — you receive gross interest and HMRC adjusts your tax code if you owe tax. For most people with modest savings, the PSA means they pay no tax on savings interest.
What is the starting rate for savings?
Beyond the PSA, there's a separate £5,000 starting rate band for savings income taxed at 0% — but it's reduced by every £1 of non-savings income above the Personal Allowance. If your total non-savings income is £12,570 or below, you get the full £5,000 starting rate (plus your PSA). This primarily benefits part-time workers or retirees with low earned income but significant savings — they could earn up to £18,570 (£12,570 + £5,000 + £1,000 PSA) before paying any tax on savings interest.
Should I use a Cash ISA or a regular savings account?
For basic rate taxpayers earning under £1,000 in interest (savings under roughly £25,000 at 4%), a regular high-interest savings account may offer better rates than ISAs since the PSA covers the interest. For higher rate taxpayers, higher savers, or for long-term savings growth, Cash ISAs are more valuable because the entire interest is permanently tax-free with no annual limit on interest earned. ISAs also protect you if rates rise or your savings grow beyond the PSA threshold. The £20,000 annual ISA allowance is use-it-or-lose-it, so contributing regularly preserves future tax-free capacity.
How does the Personal Savings Allowance (PSA) apply to different income tax bands?
The Personal Savings Allowance (PSA) allows individuals to earn a certain amount of savings interest tax-free each tax year. Basic rate taxpayers (20%) can earn up to £1,000 of interest without paying tax, while higher rate taxpayers (40%) have a PSA of £500. Additional rate taxpayers (45%) do not receive any Personal Savings Allowance.
What happens if my annual savings interest exceeds my Personal Savings Allowance?
If your total savings interest income goes above your Personal Savings Allowance, the excess amount becomes taxable. This surplus interest is added to your other income and taxed at your marginal income tax rate (e.g., 20%, 40%, or 45%). For example, a basic rate taxpayer earning £1,200 interest with a £1,000 PSA would pay 20% tax on the remaining £200.
Common Mistakes to Avoid
▾
- !Assuming all bank interest is tax-free just because it is below the PSA — additional rate taxpayers have no PSA and all interest is potentially taxable
- !Not making full use of the annual ISA allowance (£20,000) to shelter savings interest permanently from tax
- !Missing the starting rate for savings allowance, which can shelter up to £5,000 of interest at 0% for low-income savers
- !Confusing the PSA with the ISA allowance — they are completely separate allowances
- !Not considering Premium Bonds for tax-free returns, especially for higher-rate taxpayers who would otherwise pay 40% on interest above their £500 PSA
- !Failing to declare taxable savings interest on Self Assessment when total interest exceeds the PSA
Pro Tip
Higher-rate taxpayers should prioritise filling their ISA allowance each tax year before holding savings in non-ISA accounts. The £500 PSA is quickly exhausted when interest rates are above 4-5% and savings are above £10,000, making ISAs essential for tax-free growth.
Did you know?
The Personal Savings Allowance was introduced in April 2016 by Chancellor George Osborne. Before that, basic rate tax on savings interest was deducted at source by banks (20%), and higher-rate taxpayers paid the extra through Self Assessment. The PSA removed the need for most basic-rate taxpayers to declare savings interest at all.
References
Have a question about this calculator? Get a detailed answer.
Get Weekly Math Tips
Join 12,000+ subscribers who get calculator tips every week.