How is bank Interest taxed?

There are multiple tax-free allowances you can use against the bank and savings interest you receive, which mean that 90% of UK taxpayers do not pay an income tax on their interest.  

There are also some proposed changes to the way bank interest is taxed, which are due to start in April 2027. 

Personal Allowance 

You can use your Personal Allowance against bank interest if you haven’t used it up on your other income, such as wages, self-employment income or pension. The Personal Allowance is the amount of income you don’t have to pay tax on and for 2026/27, is set at £12,570. Please note that HMRC can amend the Personal Allowance for each individual via your tax code, to take into account things like unpaid tax from previous years or to incorporate payment of the High Income Child Benefit Charge.

Starting Rate for Savings 

If you earn less than £17,570 (2026/27), you may also get up to £5,000 of interest tax-free. This is called the starting rate for savings. The more you earn above the Personal Allowance (from your salary, for example), the less your starting rate for savings will be. 

Personal Savings Allowance 

You may also get up to £1,000 of interest tax-free from your Personal Savings Allowance.  

Basic rate taxpayers receive a £1,000 allowance. Higher rate taxpayers only have an allowance of £500. If you have interest above your Personal Savings Allowance, you’ll pay tax on any excess above your allowance at your marginal rate of income tax. 

Individual Savings Accounts (ISAs) 

Interest you earn within an ISA is tax-free if the various rules are met. This interest does not count towards the various allowances detailed above.  

For the 2026/27 tax year, you can save up to £20,000 in an ISA or ISAs. The interest remains tax-free in future years as long as it remains within the ISA or is transferred to a new ISA product in a qualifying way.  

The £20,000 annual limit is across both cash and stocks and shares ISAs. For example, if you save £20,000 into a cash ISA you cannot also save into a stocks and shares ISA. If you save £5,000 into a cash ISA, you could save up to £15,000 into a stocks and shares ISA.  

Changes from April 2027 

From 6th April 2027 new savings interest income tax rates will begin across the UK, as announced in the Autumn 2025 Budget. Initially rates will be 2% higher than the standard UK income tax rates: 

• Savings basic rate – 22% 
• Savings higher rate – 42% 
• Savings additional rate – 47% 

ISA allowances are also changing from 6th April 2027. The allowance for stocks and shares ISAs will remain £20,000 but the cash ISA allowance will reduce to £12,000 for under 65s.  

This is because the Government wants to encourage people to invest into stocks and shares rather than cash to help businesses receive more investment and because stocks and shares typically give a greater return than cash over the long term.  

For help dealing with your bank and savings interest tax, call TaxAssist on 0800 0523 555 or use our online contact form. 

Last updated 15 Jul 2026 | First published 1 Dec 2017

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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