Banks in the UK already pay a bank corporation tax surcharge of 3% on profits above a 100 million pounds allowance, on top of the main 25% corporation tax rate. The combined headline rate on bank profits is around 28%, and banks also pay the separate bank levy on balance sheets.
TL;DR · LAST REVIEWED 21 AUGUST 2026
- Banks pay a 3% surcharge on profits above 100 million pounds, on top of 25% corporation tax.
- The combined headline rate on bank profits is around 28%.
- UK Finance warned the Chancellor that further tax rises could damage competitiveness.
- Analysts warn a higher surcharge could lead to lower savings returns and costlier borrowing.
- No tax change is confirmed; the Budget is expected in October 2026.
KEY FACTS
- Banks pay a 3% surcharge on profits above 100 million pounds.
- The main corporation tax rate is 25%.
- The combined headline rate on bank profits is around 28%.
- A windfall tax could raise around 32 billion pounds over five years.
- The fiscal shortfall is estimated at more than 30 billion pounds.
What has happened
UK Finance, the trade body for the UK's largest banks, has written to the Chancellor warning that further tax rises would damage the international competitiveness of the sector. The intervention comes ahead of the first Budget of the new government, expected in October 2026, and follows reported lobbying by senior executives from global banks.
The letter, sent on 20 August 2026, was addressed to Chancellor John Healey and signed by UK Finance, which represents lenders including Barclays, HSBC, Lloyds and NatWest. It argues that additional tax burdens on the banking sector would undermine the UK's position as a global financial centre and could deter inward investment.
The warning lands against a backdrop of intense speculation about the contents of the upcoming Budget. The new government has stated that difficult decisions on tax and spending will be necessary, and the banking sector is seen as one of the areas under scrutiny.
How banks are taxed now
Banks in the UK are subject to a specific tax regime on top of the main corporation tax rate. They pay a 3% surcharge on profits above a £100 million allowance, in addition to the standard 25% rate of corporation tax, giving a combined headline rate of around 28% on banking profits.
The bank corporation tax surcharge was introduced to ensure that banks make a fair contribution to the public finances, reflecting the higher levels of risk and the potential cost to the state of financial instability. The £100 million allowance means that smaller banks and building societies with profits below that threshold do not pay the surcharge.
In addition to the surcharge, banks are also liable for the separate bank levy, which is charged on their UK balance sheets. This levy was designed to raise revenue from the sector's global assets and is calculated differently from the profits-based surcharge.
Why the Budget matters
The Chancellor is preparing to deliver a Budget against an estimated fiscal shortfall of more than £30 billion. A higher bank surcharge is among the revenue-raising options being discussed by policymakers and external analysts.
Economists have identified a gap between planned spending and expected tax revenues, which the government has said will need to be closed. The banking sector, which is highly profitable, has been highlighted as a potential source of additional revenue.
The Institute for Public Policy Research has argued that a windfall tax on banks could raise around £32 billion over five years. However, no decision has been confirmed, and the Treasury has not commented on the specific proposals put forward by the think tank or by UK Finance.
What it could mean for savers and borrowers
Analysts have warned that a higher tax on banks could ultimately be passed on to households. This could result in lower interest rates on savings accounts and higher costs on loans, mortgages and other forms of borrowing.
The mechanism for this would be straightforward: if banks face a higher tax bill, they may seek to protect their profit margins by adjusting the prices they offer to customers. This could mean reducing the rates paid to savers or increasing the rates charged to borrowers.
Nothing has been confirmed, and the final impact would depend on the design of any measure, including the rate of any increase and the threshold at which it applies. The government has not indicated that it will change the bank tax regime, and the measures will be set out in full at the Budget.
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DISCLAIMER
This article is for general information only and does not constitute financial, legal or tax advice. Figures are accurate as at publication and can change. Check the primary source or a qualified professional before acting.
Frequently asked questions
What tax do UK banks pay?
Banks pay a 3% surcharge on profits above a 100 million pounds allowance, on top of the 25% main corporation tax rate, giving a combined headline rate of around 28%, plus a separate bank levy.
Is the government raising bank taxes?
No change is confirmed; a higher bank surcharge is among the options being discussed ahead of the October 2026 Budget, and banks have warned against it.
Could a bank tax rise affect savers?
Analysts warn a higher tax on banks could be passed on through lower savings returns and more expensive borrowing, though this is not certain.
What is the bank surcharge?
An extra charge on bank profits, currently 3% above a 100 million pounds allowance, introduced after the 2008 financial crisis on top of corporation tax.
When is the 2026 Budget?
The Chancellor's first Budget is expected in October 2026, when any tax changes would be set out.
SOURCES
- GOV.UK: Corporation Tax surcharge on banking companies – accessed 2026-08-21
- GOV.UK: HM Treasury – accessed 2026-08-21
- House of Commons Library: taxation of banks – accessed 2026-08-21
