By Chandraketu Tripathi · Updated April 2026 · Fact-checked Tax · April 2026HMRC has issued warnings to millions of UK savers that elevated savings interest rates mean they may now owe tax on their savings interest — without realising it. With the best easy access accounts paying 4.5-4.8% AER, a basic rate taxpayer with as little as £22,000 in savings can breach their £1,000 Personal Savings Allowance. Here is everything you need to know.
Why Is HMRC Warning Savers Now?Between 2009 and 2021, savings rates were so low (often below 1%) that the Personal Savings Allowance was rarely breached — even savers with large balances earned little interest. From 2022, the Bank of England began raising rates aggressively, pushing savings rates from under 1% to over 5% at their peak. Even at today's rates of 4.5-4.8% AER, millions of savers are now earning more interest than their PSA covers. HMRC receives interest data automatically from banks and building societies at the end of each tax year. If you exceed your PSA, HMRC will typically adjust your tax code to collect the additional tax through PAYE — reducing your take-home pay. This can feel like an unexpected income cut if you did not know about the PSA rules. How HMRC Collects Tax on Savings InterestYou do not need to call HMRC or file a special form if your savings interest is collected through PAYE. HMRC receives the information from your bank and adjusts your tax code — typically adding a deduction to your tax code that collects the additional tax spread over the following tax year. If you are self-employed or not in PAYE employment, you declare savings interest on your Self Assessment tax return. 💡 The simplest way to protect savings interest from tax: use your £20,000 annual Cash ISA allowance. Interest earned inside a Cash ISA is always tax-free and never counts towards your Personal Savings Allowance — no matter how much interest you earn. In 2026/27, this is especially important given that the Cash ISA allowance for under-65s drops to £12,000 from April 2027. Joint Accounts and Savings TaxHMRC has also warned about joint savings accounts — interest from a joint account is split equally between account holders for tax purposes, regardless of who deposited the money. Each holder applies their own PSA to their 50% share. This can actually be advantageous if one partner is a basic rate taxpayer and the other is a higher rate taxpayer — splitting the interest allocation can reduce the overall tax bill. The Side Hustle Tax WarningSeparately, HMRC has warned people with side income — from platforms like eBay, Vinted, Etsy, Airbnb or freelance work — that they must declare income above £1,000 per year (the trading allowance). Digital platforms are now required to report their users' income to HMRC, making it increasingly difficult to overlook side income. ⭐ OUR VERDICT The HMRC savings warning is real — millions of UK savers are now exceeding their Personal Savings Allowance without realising it. The most effective response is to maximise your Cash ISA contributions, which shelter interest from tax entirely. If you have savings above £22,000 earning 4.5%+ and you are a basic rate taxpayer, your interest is likely exceeding your £1,000 PSA. HMRC will adjust your tax code — but knowing about it in advance allows you to plan. Use ISAs first, then standard savings accounts up to your PSA, then consider NS&I Premium Bonds for tax-free prize potential. Frequently Asked QuestionsHow does HMRC know about my savings interest? Banks and building societies are legally required to report interest paid to customers to HMRC at the end of each tax year. HMRC uses this information to check whether you have exceeded your Personal Savings Allowance and adjusts your tax code accordingly. You do not need to proactively contact HMRC — they receive the data automatically. What is the Personal Savings Allowance? The Personal Savings Allowance (PSA) allows most UK taxpayers to earn a certain amount of savings interest tax-free each year. Basic rate taxpayers get £1,000. Higher rate taxpayers get £500. Additional rate taxpayers get nothing — all their savings interest is taxable. Interest inside a Cash ISA does not count towards the PSA. Will I get a fine if I haven't paid tax on savings interest? HMRC typically adjusts your tax code to collect underpaid tax on savings interest rather than issuing a fine. However, if you have significantly under-reported income or deliberately avoided declaring savings interest on a Self Assessment return, penalties can apply. The best approach is to check your tax position each year and ensure HMRC has your correct bank interest figures. Is NS&I Premium Bonds interest taxable? No. Premium Bond prizes are completely tax-free and do not count towards your Personal Savings Allowance. They are technically 'prizes' rather than interest, which gives them their unique tax status. NS&I savings accounts (other than Premium Bonds) do pay interest that counts toward the PSA. |
HMRC Savings Warning 2026: Are You About to Get a Tax Bill on Your Savings?
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