UK savings interest tax with PSA.
Tax on savings interest
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PSA used
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Your breakdown
Updates live as you type| Layer | Interest covered |
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Three layers of protection before any tax is due
Most savers never pay a penny on their interest, and that is by design. Three separate allowances stack up before the taxman takes a share. First is the starting rate for savings, a band of up to £5,000 taxed at 0%, but only available to those whose other income is low. Second is the Personal Savings Allowance, worth £1,000 to a basic rate taxpayer, £500 to a higher rate taxpayer, and nothing at all to an additional rate taxpayer. Only what remains after both is taxed, at your marginal rate. This calculator applies the layers in the order HMRC requires, and the order matters because the starting rate band is consumed by your non savings income first, leaving less room for your interest.
£2,000 of interest on a £40,000 salary
Take a basic rate taxpayer earning £40,000 of other income with £2,000 of savings interest. Their other income of £40,000 sits well above £17,570, which is the £12,570 personal allowance plus the £5,000 starting band, so none of the starting rate band is left for savings. As a basic rate taxpayer they keep the full £1,000 Personal Savings Allowance, leaving £1,000 of interest taxed at 20%, which is £200.
The same £2,000 of interest would cost a higher rate taxpayer far more, because their allowance shrinks to £500 and the remaining £1,500 is taxed at 40%, giving £600. An additional rate taxpayer gets no allowance and pays 45% on the whole £2,000, which is £900. The chart shows how the tax on identical interest climbs as income rises.
Who the starting rate band really helps
The £5,000 starting rate band is the part savers least understand, and it is a gift to a specific group: people with little or no employment or pension income but meaningful savings. A retiree drawing a small pension of, say, £14,000 has £3,570 of starting band left after their personal allowance, on top of the £1,000 Personal Savings Allowance, so they can shelter a large chunk of interest at 0%. As soon as other income reaches £17,570 the starting band is gone entirely, which is exactly what happens in the example above. This tool is for savers checking whether a chunky interest payment will actually be taxed, and for retirees and low earners working out how much they can earn in interest tax-free. One important boundary: the tool decides your marginal rate from your other income alone, so it does not model the £100,000 personal allowance taper, and savers near £100,000 should treat the result as indicative.
How joint accounts split the interest
This calculator treats the interest as belonging to one person, but couples with a joint savings account are taxed differently and it usually works in their favour. HMRC's default rule is that interest on a jointly held account is split 50/50 between the two holders, regardless of who actually funded it, unless the money is in a formal unequal arrangement. That split means each partner brings their own Personal Savings Allowance and their own band to their half of the interest. A couple where one is a basic rate taxpayer with a spare £1,000 allowance and the other has used theirs up can therefore shelter more interest between them than the single-person view here suggests. The planning move that follows is to hold more of the savings, or open the account, in the name of the lower earning partner, so more of the interest lands in their unused allowance and lower band. For married couples this is a simple, fully legitimate way to cut the tax on the same pot of savings.
Reader questions
How do Scottish taxpayers fit into this?
Savings interest is taxed under the UK wide rules even for Scottish residents, so the £1,000 and £500 Personal Savings Allowances and the £50,270 and £125,140 thresholds in this tool apply to your interest regardless of where in the UK you live. Scotland's separate income tax bands govern your earnings and pension, not your savings interest, so a Scottish saver and an English saver with the same income pay the same tax on the same interest.
How does HMRC actually collect tax on my interest?
Banks no longer deduct tax at source. They report the interest they pay you to HMRC, which then collects any tax due, usually by adjusting your PAYE tax code the following year, or through Self Assessment if you complete a return. That lag means a tax bill on a good year of interest can land a year later than you expect, so it is worth setting the money aside.
A practical tip: if your only taxable interest sits just above your allowances, an ISA fixes the problem permanently. Moving the relevant savings into the £20,000 ISA allowance takes the interest out of tax altogether, with nothing to report and no future code adjustment. For a higher or additional rate taxpayer whose £500 or nil allowance is quickly used up, the ISA wrapper is usually the first move, not an afterthought.