Interest on Savings

At the moment, interest on savings is taxed at the standard income tax rates. Basic rate taxpayers receive a personal savings allowance of £1,000, while for higher rate taxpayers, the personal savings allowance is £500. Additional rate taxpayers do not receive a personal savings allowance.

A savings starter rate of 0% applies to savings falling with the savings starting rate band, set at £5,000. However, this is reduced pound for pound by non-savings non-dividend income in excess of the personal allowance.

From 6 April 2027, the tax rates for savings interest are to rise by two percentage points. This will mean basic rate taxpayers will pay tax at 22% on taxable savings income, for higher rate taxpayers the rate is 42% and for additional rate taxpayers the rate is 47%. From the same date, the personal allowance will first be set against income from employment, trading income and pensions income rather than automatically against income taxed at the highest rates.

To minimise the tax that you will pay on your savings income, consider making use of your ISA allowance. The allowance is to remain at £20,000. However, from 6 April 2027, under 65’s will only be able to invest £12,000 in a cash ISA.

Why not get in touch to discuss how to ensure that your savings are invested in a tax efficient manner.