How Much Tax Do You Pay On Savings Calculator

Calculate how much tax you’ll pay on your savings interest based on your income, savings amount, and tax status. Updated for 2024/25 tax year.

How Much Tax Do You Pay on Savings Interest? (2024 Guide)

Understanding how much tax you pay on savings interest is crucial for maximising your returns. Since April 2016, the UK has operated a Personal Savings Allowance (PSA) system that determines how much interest you can earn tax-free each year. This comprehensive guide explains everything you need to know about savings tax in 2024/25.

1. The Personal Savings Allowance (PSA) Explained

The Personal Savings Allowance (PSA) was introduced to simplify how savings interest is taxed. Your PSA depends on your income tax band:

Tax Band	2024/25 PSA	Tax Rate on Savings Interest
Basic rate (20%) taxpayers	£1,000	20%
Higher rate (40%) taxpayers	£500	40%
Additional rate (45%) taxpayers	£0	45%
Non-taxpayers	£5,000 (starting rate)	0%

Important notes about the PSA:

• It applies to interest from bank/building society accounts, credit union accounts, and some government securities
• It doesn’t apply to ISA interest (which is always tax-free)
• If your total non-ISA interest exceeds your PSA, you’ll pay tax on the excess at your normal income tax rate
• The allowance is per person – couples can each have their own PSA

2. How Savings Interest is Taxed

Since 2016, banks and building societies no longer deduct tax from your interest automatically. Instead:

1. Your bank reports all interest earned to HMRC
2. HMRC uses this information to calculate if you owe any tax
3. If you exceed your PSA, HMRC will either:
   • Adjust your tax code to collect the tax through PAYE, or
   • Send you a self-assessment tax bill if you’re self-employed or have complex affairs

3. Starting Rate for Savings (for Low Earners)

If your total income (including savings interest) is below £17,570 in 2024/25, you may qualify for the starting rate for savings. This gives you:

• Up to £5,000 of savings interest tax-free (on top of your PSA)
• The starting rate is 0% on savings income up to £5,000
• For every £1 of income over £12,570, your starting rate allowance reduces by £1

Total Income	Starting Rate Allowance	PSA (if basic rate)	Total Tax-Free Interest
£12,570 or less	£5,000	£1,000	£6,000
£13,570	£4,000	£1,000	£5,000
£15,570	£2,000	£1,000	£3,000
£17,570 or more	£0	£1,000	£1,000

4. How Different Account Types Are Taxed

The type of savings account you use affects how your interest is taxed:

• Easy Access Accounts: Interest is taxable and counts toward your PSA
• Fixed Term Accounts: Interest is taxable and counts toward your PSA (tax is due in the year the interest is paid, not when the bond matures)
• Cash ISAs: All interest is completely tax-free and doesn’t count toward your PSA
• Premium Bonds: Winnings are tax-free and don’t count toward your PSA
• NS&I Income Bonds: Interest is taxable and counts toward your PSA

5. How to Reduce Tax on Savings Interest

There are several legitimate ways to reduce the tax you pay on savings:

1. Use your ISA allowance: You can save up to £20,000 per year in ISAs (2024/25), with all interest tax-free
2. Spread savings between spouses: Each person gets their own PSA, so couples can effectively double their tax-free allowance
3. Consider premium bonds: While they don’t pay interest, all winnings are tax-free
4. Time your interest payments: If you’re near the boundary between tax bands, timing when you receive interest could help manage your PSA usage
5. Use tax-efficient investments: For larger sums, consider investment ISAs or other tax-efficient products

6. Common Savings Tax Mistakes to Avoid

Many savers unknowingly make mistakes that could cost them money:

• Assuming all interest is tax-free: Many people don’t realise they might owe tax if their interest exceeds their PSA
• Not declaring foreign interest: Interest from overseas accounts is still taxable in the UK
• Ignoring joint accounts: Interest from joint accounts is typically split 50/50 for tax purposes
• Forgetting about previous years: If you’ve used up your PSA in previous years, you might owe tax you weren’t expecting
• Not checking your tax code: HMRC might adjust your tax code to collect savings tax, which could affect your take-home pay

7. How HMRC Collects Savings Tax

HMRC uses several methods to collect tax on savings interest:

1. PAYE tax code adjustment: For most employed people, HMRC will reduce your personal allowance by the amount of tax due, collecting it through your salary
2. Self-assessment: If you complete a tax return, you’ll need to declare your savings interest and pay any tax due with your return
3. Simple assessment: HMRC might send you a tax bill (PA302) if you owe less than £3,000 and aren’t in self-assessment

You’ll usually receive a P800 tax calculation from HMRC if they believe you owe tax on savings interest.

8. Savings Tax for Different Types of Savers

Children’s Savings

Children have their own PSA (£1,000 for basic rate), but special rules apply:

• Interest from parent-given money is taxed as the parent’s income if it exceeds £100 per year per parent
• Junior ISAs are completely tax-free (£9,000 allowance for 2024/25)

Retirees

Pensioners often have more savings and may be affected by:

• State pension counting toward your income for PSA purposes
• Potential loss of age-related allowances if income exceeds certain thresholds
• Different PSA rules if you’re no longer working

Self-Employed Individuals

If you’re self-employed:

• You must declare all savings interest on your self-assessment tax return
• Savings interest counts as income for student loan repayment purposes
• You might need to make payments on account if your tax bill is large

9. Recent Changes to Savings Tax (2024 Updates)

The 2024/25 tax year brings several important changes:

• Frozen PSA limits: The £1,000 (basic) and £500 (higher) allowances remain unchanged from 2023/24
• Higher interest rates: With base rates at 5.25% (as of March 2024), more savers are exceeding their PSA
• New NS&I products: National Savings has introduced new taxable products with competitive rates
• Digital reporting: HMRC is increasingly using digital systems to track savings interest in real-time

10. When to Seek Professional Advice

While the calculator above gives you a good estimate, you might want to consult a tax advisor if:

• You have savings in multiple countries
• Your income is close to the boundary between tax bands
• You have complex financial arrangements or trusts
• You’re receiving significant interest from corporate bonds or other investments
• You’re unsure whether you need to complete a self-assessment return

Important Disclaimer: This calculator provides an estimate based on the information you’ve provided and current tax rules (2024/25). It doesn’t constitute financial advice. Tax rules can change, and your individual circumstances may affect your actual tax liability. For precise calculations, consult HMRC or a qualified tax advisor. The calculator assumes you’re a UK taxpayer and doesn’t account for Scottish or Welsh tax variations.

Authoritative Resources

For official information about savings tax:

• GOV.UK: Apply for tax-free interest on savings
• GOV.UK: Tax on savings interest
• Which?: Savings income tax guide