Savings interest is paid gross and set against allowances: £1,000 tax free a year for basic rate taxpayers, £500 for higher rate, nil at additional rate, with up to £5,000 more for low earners through the starting rate for savings. Banks report interest to HMRC automatically, and from April 2027 must also collect National Insurance numbers.
TL;DR · LAST REVIEWED 25 JULY 2026
- Personal Savings Allowance: £1,000 basic rate, £500 higher rate, £0 additional rate
- Starting rate for savings: up to £5,000 of interest at 0% where other income is under £17,570
- Banks report interest to HMRC after each tax year; collection runs through tax codes, P800 or Simple Assessment letters
- From April 2027 providers must collect National Insurance numbers from new and existing savers: the change behind the crackdown headlines
- Joint account interest splits 50/50 by default; married couples with unequal ownership can file Form 17
- Self Assessment becomes mandatory when savings interest alone exceeds £10,000
KEY FACTS
- Personal Savings Allowance 2026/27: £1,000 (basic), £500 (higher, income above £50,270), £0 (additional, above £125,140)
- Starting rate for savings: up to £5,000 at 0% where non savings income sits below £17,570
- Interest paid gross since April 2016; banks report totals to HMRC automatically
- National Insurance number collection by savings providers mandatory from April 2027, approved 2025 and legislated during 2026
- Roughly 300,000 more people were paying savings tax by 2025 than five years earlier
- Joint accounts: interest split 50/50 by default; Form 17 declares genuine unequal ownership for spouses and civil partners
How the allowances stack
Interest is covered first by any unused Personal Allowance of £12,570, then by the starting rate for savings of up to £5,000 at 0% for those whose other income sits below £17,570, and finally by the Personal Savings Allowance of £1,000, £500 or nil depending on tax band.
The starting rate tapers away pound for pound as non savings income rises above the Personal Allowance, which is why it mainly benefits retirees and part time earners living partly on savings.
A higher earner crosses into tax at £500 of interest, which a £10,000 pot at around 5% breaches comfortably. Frozen thresholds and higher rates explain the steady growth in savers receiving unexpected bills.
How HMRC collects the tax
Banks and building societies have paid interest gross and reported it to HM Revenue and Customs after each tax year since 2016. For employees and pensioners HMRC adjusts the PAYE tax code or issues a P800 or Simple Assessment letter; no return is needed below the thresholds.
Self Assessment applies to those already in the system, and becomes mandatory in its own right when savings interest alone exceeds £10,000 in a year.
The reporting change from April 2027 adds the missing identifier: providers must collect National Insurance numbers from new and existing customers, letting HMRC match every account to a tax record automatically. It introduces no new tax; it makes the existing one hard to miss. Undeclared interest where declaration was required risks backdated assessments, statutory interest and penalties.
Joint accounts and the 50/50 rule
HMRC splits joint account interest equally between the holders by default, sets each half against that person's own allowances, and reports it under each person's record, regardless of who deposited the money.
For couples with unequal incomes the default is frequently expensive: a higher rate taxpayer exhausts a £500 allowance while a basic rate partner's £1,000 sits unused. Married couples and civil partners who genuinely own the money unequally can declare the real split with Form 17, supported by evidence of beneficial ownership.
Unmarried couples are taxed on actual entitlement rather than the automatic split. Moving savings into the lower earner's sole name remains the simplest legal fix where trust allows it.
Keeping interest out of tax entirely
ISA interest never counts toward any allowance: up to £20,000 a year shelters interest permanently, with the cash ISA element capping at £12,000 for under 65s from April 2027. Premium Bond prizes are also tax free.
For couples, pairing ISA wrappers with allowance planning across both partners covers substantial savings before any tax falls due. Beyond that, the comparison between a taxed top savings rate and a tax free ISA rate decides where the next pound belongs.
RELATED GUIDES
DISCLAIMER
This article is editorial information, not financial advice. Kael Tripton Ltd is not authorised or regulated by the Financial Conduct Authority. Figures were correct at the last review date shown above; verify current rates and rules with the primary sources listed below before acting.
Frequently asked questions
How much interest can I earn tax free?
Basic rate taxpayers: £1,000 a year. Higher rate: £500. Additional rate: nil. Lower earners with non savings income under £17,570 get up to £5,000 more through the starting rate for savings, plus any unused Personal Allowance.
Is the savings tax crackdown a new tax?
No. From April 2027 banks must collect National Insurance numbers so HMRC can match reported interest to individuals automatically. Rates and allowances are unchanged; the enforcement gap is what closes.
How does HMRC know about my interest?
Providers report interest paid after each tax year, and have since gross payment began in 2016. Collection then happens through a tax code adjustment, a P800 or Simple Assessment letter, or Self Assessment.
How are joint accounts taxed?
Interest splits 50/50 between holders by default, each half set against that person's allowances. Married couples and civil partners with genuinely unequal ownership can declare the real split on Form 17.
When does savings interest force a tax return?
When savings and investment interest exceeds £10,000 in a year, or when the saver already files Self Assessment for other reasons, in which case all interest goes on the return.
Do ISAs avoid all of this?
Yes. ISA interest is tax free, sits outside every allowance, and is untouched by the National Insurance number rules, which is the practical answer for anyone persistently above their Personal Savings Allowance.
SOURCES
- GOV.UK: Tax on savings interest – accessed 25 July 2026
- HM Revenue and Customs – accessed 25 July 2026
- GOV.UK: Individual Savings Accounts – accessed 25 July 2026
