One of the UK's most underused tax allowances. The Starting Rate for Savings lets you earn up to £5,000 of interest at 0% tax — but only if your non-savings income is low enough. Most people who qualify don't realise they do.
What the Starting Rate for Savings is
The Starting Rate for Savings is a separate 0% tax band that applies specifically to savings interest. For 2026/27, up to £5,000 of savings interest can fall within this band, attracting no income tax at all.
It sits alongside two other savings-related allowances:
- Personal Savings Allowance (PSA) — £1,000 / £500 / £0 by tax band
- ISA allowance — £20,000 completely tax-free
Critically, the Starting Rate stacks on top of these other allowances. Someone eligible for all three can earn substantial amounts of interest tax-free. But there's a catch — the Starting Rate only applies if your non-savings income is low enough.
The eligibility condition: low non-savings income
You only benefit from the Starting Rate if your non-savings income (salary, self-employment, pension, rental) is less than £17,570 in the 2026/27 tax year.
Here's exactly how it works:
| Non-savings income | Starting Rate allowance |
|---|---|
| £12,570 or below | Full £5,000 |
| £13,570 | £4,000 |
| £15,000 | £2,570 |
| £17,000 | £570 |
| £17,570 or above | £0 — fully tapered |
The mechanics: for every £1 of non-savings income above the Personal Allowance (£12,570), you lose £1 of Starting Rate. By the time non-savings income reaches £17,570, the Starting Rate has been completely tapered away.
Who typically benefits
The Starting Rate for Savings is particularly valuable for:
Retirees on modest pension income
Someone drawing £10,000 from private pensions plus State Pension plus £8,000 of savings interest pays zero income tax. The £10,000 private pension + State Pension fits inside the Personal Allowance plus State Pension uplift (the full State Pension in 2026/27 is roughly £11,973/year). Any Personal Allowance headroom covers pension income, then the full £5,000 Starting Rate absorbs most interest, with the PSA covering the rest.
Career-break savers
If you're on parental leave, a sabbatical, or between jobs, your non-savings income might dip below £17,570 for the year. If you have substantial savings, this is the year to realise interest — though timing such things requires planning.
Part-time workers with savings
Students, semi-retired workers, and people working reduced hours often have low earned income but may have built up savings from inheritance, previous employment or property sale proceeds. The Starting Rate is ideal here.
Self-employed in low-income years
Self-employment income is lumpy. In years where profits are modest (new business, scaled-back workload, between contracts), the Starting Rate may kick in.
A worked example
Sarah, 66, has:
- State Pension: £11,973
- Small private pension: £1,500
- Savings interest from ISAs: £6,000 (irrelevant — ISA is already tax-free)
- Savings interest from non-ISA: £7,500
Sarah's non-savings income is £13,473 (state + private pension).
She's entitled to the full Personal Allowance (£12,570) which covers most of her pension income, leaving £903 of pension income taxable at 20% = £180.80.
Now the savings:
- Personal Allowance headroom: £0 (used on pension)
- Starting Rate available: £5,000 minus (£13,473 − £12,570) = £5,000 − £903 = £4,097 at 0%
- PSA: £1,000 at 0% (basic-rate)
- Remaining: £7,500 − £4,097 − £1,000 = £2,403 taxed at 20% = £480.60
Total income tax: £180.80 + £480.60 = £661.40.
Without the Starting Rate for Savings, Sarah would have paid an extra £820 in tax on that £4,097 of interest. The Starting Rate saves her real money.
How to claim it
You don't "claim" the Starting Rate in the traditional sense — HMRC automatically applies it when calculating your tax. But you need HMRC to know about your savings interest.
- If you're employed (PAYE): HMRC will adjust your tax code to collect any tax on savings interest above the Starting Rate + PSA. If the adjustment is wrong, call HMRC to correct it.
- If you file self-assessment: declare savings interest on the SA101 pages. HMRC calculates your tax including the Starting Rate automatically.
- If you're neither employed nor self-assessed: banks report interest payments to HMRC automatically. If you owe tax, HMRC will issue a Simple Assessment notice.
If you believe HMRC should refund you because of the Starting Rate, use form R40 (Claim a refund of Income Tax deducted from savings and investments) — especially for retirees who no longer file self-assessment.
The Starting Rate vs the PSA vs ISAs
Understanding when each applies:
| Income scenario | Best protection |
|---|---|
| Low earner with cash savings | Starting Rate (up to £5k at 0%) |
| Basic-rate earner with small savings | PSA (£1,000 at 0%) |
| Higher-rate earner with small savings | PSA (£500 at 0%) or ISA |
| Additional-rate earner | ISA — no PSA applies |
| Long-term saver of any income | ISA — tax-free regardless of band |
| Saver approaching higher-rate threshold | ISA + pension contributions |
Frequently asked questions
What is the Starting Rate for Savings for 2026/27?
Up to £5,000 of savings interest at 0% tax, but only available if your non-savings income is below £17,570. Tapers at £1 for every £1 of non-savings income above the £12,570 Personal Allowance.
How is the Starting Rate different from the PSA?
The PSA applies to all taxpayers (based on tax band) but is only £1,000/£500/£0. The Starting Rate applies only to low earners but can be up to £5,000. They stack — someone eligible for both gets the Starting Rate first, then the PSA on top.
Can I use the Starting Rate with ISA interest?
ISA interest is already tax-free and doesn't count toward or use up the Starting Rate. You can have £20,000 of ISA interest AND £5,000 of non-ISA interest under the Starting Rate, paying zero tax on both.
Do dividends count for the Starting Rate?
No. The Starting Rate only applies to savings interest. Dividends have their own £500 Dividend Allowance and different rates (10.75%/35.75%/39.35%).
Is the Starting Rate the same in Scotland?
Yes. Savings interest is taxed at UK-wide rates regardless of Scottish residency. The Starting Rate and PSA work identically in Scotland.
What happens if my non-savings income is exactly £12,570?
You get the full £5,000 Starting Rate. The taper only kicks in once non-savings income exceeds the Personal Allowance.
Quick links
- UK Tax Guide 2026/27
- UK Personal Savings Allowance
- UK Personal Allowance
- UK Income Tax Rates
- Best ISA Accounts UK
- UK Income Tax Calculator
