Do I pay tax on my savings?

Do I pay tax on my savings?  

Understanding if and when you pay tax on your savings can help you make the most of your money.

In this guide we explain how your savings might be taxed, what counts towards your Personal Savings Allowance (PSA), how ISAs work, and how any tax is paid.

What is a Personal Savings Allowance?

Each tax year, you can earn a certain amount of interest on your savings without paying tax. This is called your Personal Savings Allowance (PSA).

How much interest you can earn tax-free depends on your income tax band:  

• Basic rate taxpayers (20%) can earn up to £1,000 in interest tax-free. 
• Higher rate taxpayers (40%) can earn up to £500 in interest tax-free.
• Additional rate taxpayers (45%) don't receive a Personal Savings Allowance.  

If you don’t pay income tax at all, you may able to earn as much as £18,570 in savings interest before paying any tax. This includes your PSA plus other allowances.  

Do I pay tax on my Individual Savings Account (ISA)?

No; Individual Savings Accounts (ISAs) are tax-free. This means:   

• Any interest you earn on cash savings in an ISA is tax-free, as long as you stay within the £20,000 annual allowance.
• You don't pay tax on income or capital gains from investments held in an ISA. 

How is the tax on savings paid?

If the interest you earn is above your allowance, you'll usually pay tax automatically through your tax code. HMRC adjusts this based on what you earned the previous year.

If you fill out a Self-Assessment tax return, you'll need to include any interest earned on your savings in the form.  

The information in this guide was accurate when published.