Tax rules and rates in this article are correct as of 12 October 2026. The Autumn Budget on 28 October 2026 may change them.

More people are paying tax on their savings interest. According to HMRC figures obtained by AJ Bell, around 2.64 million people were expected to pay tax on savings income in 2025/26, up from about 647,000 in 2021/22. Hargreaves Lansdown reported in September 2026 that more than 4.5 million are expected to pay in 2026/27.

Higher savings rates over the past few years are one reason. Another is that the Personal Savings Allowance hasn't changed since it was introduced in 2016, while income tax thresholds have been frozen since 2021, and will stay frozen until April 2031. As incomes rise, more people move into higher tax bands, which also reduces their Personal Savings Allowance.

How tax on savings interest works

Most people can earn some savings interest tax-free under the Personal Savings Allowance. Above that, interest is taxed at your income tax rate.

Interest in an ISA is tax-free and doesn't count towards the allowance.

If your other income is less than £17,570, you may also get the starting rate for savings, which lets you earn up to £5,000 of interest tax-free. The full £5,000 applies if your other income is £12,570 or less, and it falls by £1 for every £1 of other income above that. See GOV.UK's guidance on tax on savings interest.

Paying the tax: if you fill in a Self Assessment tax return, you declare savings interest there. If you're employed or get a pension, HMRC usually collects any tax by changing your tax code, using interest figures reported by banks and building societies.

Ways to reduce tax on savings

ISAs

You can pay up to £20,000 a year into ISAs, and interest earned in an ISA is tax-free. From 6 April 2027, people under 65 will be able to put a maximum of £12,000 a year into cash ISAs. The overall £20,000 limit stays the same, so the rest would have to go into other types of ISA, such as a stocks and shares ISA. People aged 65 and over will still be able to put the full £20,000 into a cash ISA.

Cash ISAs have become more popular. HMRC figures show cash ISA subscriptions rose by 37.5% to about £95.6 billion in 2024/25. In April 2025 alone, £14 billion went into cash ISAs, the highest monthly amount since Bank of England records began in 1999.

Premium Bonds

Premium Bonds don't pay interest. Instead, each £1 bond is entered into a monthly prize draw, and prizes are tax-free. You can hold up to £50,000. Prizes range from £25 to £1 million.

From the September 2026 draw, the prize fund rate is 4.35% and the odds of each £1 bond winning are 21,000 to 1. The prize fund rate is an average across all bonds, not a guaranteed return. You might win more, less or nothing.

Pensions

Pension contributions get tax relief. With most personal pensions, if you pay in £80, your pension provider claims £20 in basic-rate tax relief from the government, so £100 goes into your pension. Higher-rate taxpayers can claim a further £20 back through Self Assessment.

Two separate limits apply:

• Your earnings: you can usually get tax relief on your own contributions up to 100% of your earnings in the tax year. If you have little or no earnings, you can still get relief on contributions of up to £3,600 a year (you pay £2,880 and £720 is added in tax relief).

• The annual allowance: for most people, £60,000 a year is the most that can be paid into all your pensions combined before you may have to pay an annual allowance charge. This includes contributions from your employer and anyone else. Some people have a lower allowance, for example people with very high incomes or people who have already started taking money from a pension flexibly. You may be able to carry forward unused allowance from the previous three tax years.

You usually can’t take money out of a pension until age 55, rising to 57 from April 2028. See GOV.UK’s guide to tax on your private pension for details.

Other tax-free allowances

Outside ISAs and pensions, you can make up to £3,000 of capital gains a year without paying Capital Gains Tax, and receive up to £500 of dividends tax-free.

Savings left in low-interest accounts

Some savings stay in accounts that pay little or no interest. Comparing rates from time to time can show whether your money could earn more elsewhere, although higher interest may also mean more tax if you go over your allowance. To compare account types, see our savings accounts guide.

This article is for general information and isn't tax advice. If you're not sure how the rules apply to you, see GOV.UK or speak to a tax adviser.

Read more:

• Savings accounts guide

• Premium Bonds prize checker

• Average household savings and wealth in the UK