💰 Are You Paying Too Much Tax on Your Savings?

Industry News - 22nd July 2026

With savings rates still relatively high, more people are finding that the interest they earn on their savings could have tax implications. 💰

The good news? Depending on your circumstances, you may be able to receive a significant amount of savings interest completely tax-free.

💷 How Much Savings Interest Can You Earn Tax-Free?

With savings rates remaining higher than we’ve seen in recent years, many people are earning more interest on their savings than ever before. The good news is that you may not have to pay tax on all of it.
For the 2026/27 tax year, the amount of tax-free savings interest you can receive depends on your income and tax band.
If your taxable income is less than £17,570, you could benefit from your Personal Allowance (£12,570) and the Starting Rate for Savings.
The Starting Rate for Savings allows up to £5,000 of savings interest to be taxed at 0% (provided your non-savings income is low enough).

📊 The Personal Savings Allowance

Many savers can also benefit from the Personal Savings Allowance (PSA):

Basic-rate taxpayers – up to £1,000 of savings interest tax-free
Higher-rate taxpayers – up to £500 tax-free
Additional-rate taxpayers – no Personal Savings Allowance

It’s important to remember that your entitlement depends on your taxable income, and different allowances can work together depending on your circumstances.

🚩 The Starting Rate Isn’t Available to Everyone

The Starting Rate for Savings benefits people with lower non-savings income.
As your non-savings income rises above your Personal Allowance (£12,570), your available £5,000 Starting Rate for Savings is reduced on a £1-for-£1 basis.
Once your non-savings income reaches £17,570, this relief is no longer available.

🏦 ISAs and Premium Bonds Remain Tax-Free

Not all savings income counts towards your tax-free savings allowances. Some forms of savings are completely exempt from tax, regardless of your level of income.

These include:

✅ Interest earned within an ISA
✅ Premium Bond prizes

Interest earned within an ISA and any Premium Bond winnings are completely tax-free. They do not count towards your Personal Savings Allowance or the Starting Rate for Savings, allowing you to earn tax-free returns without using any of these allowances.

📝 How Is Tax on Savings Interest Collected?

Banks and building societies no longer deduct tax before paying interest.

HMRC usually receives information about the interest you’ve earned directly from banks and building societies. If tax is due, they may collect it by adjusting your tax code or through Self Assessment, depending on your circumstances.

However, if you complete a Self-Assessment tax return, you’ll need to declare any taxable savings interest yourself.

It’s important to review your position regularly, particularly if your savings balances or interest rates have increased.

⏳ Have You Overpaid Tax?

You could be due a tax refund.
If you’ve paid too much tax on your savings income, you can usually claim back up to four tax years.
📅 For the 2022–23 tax year, make your claim by 5 April 2027.
If you’re unsure whether you’ve paid the correct amount, check now before the deadline passes.

💡 Perrigo Perspective

As interest rates have increased, many individuals who have never paid tax on savings income are now finding themselves closer to, or exceeding, their available allowances.

Understanding how the Personal Allowance, Starting Rate for Savings and Personal Savings Allowance work together can help you maximise your tax-free income and avoid unexpected tax bills. It’s also important to ensure HMRC has accurate information and review previous years if you think you may have overpaid.

A simple review today could uncover a tax refund or help you avoid paying more tax than necessary later.

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📞 Not Sure Where You Stand?

Whether you’re trying to understand your savings allowances, check whether tax is due, or find out if you’re entitled to a refund, we’re here to help.

Call our team on 01229 488860 for a friendly, no-obligation chat about your savings income and tax position or join us at our next drop-in session on Thursday 30th July. It’s the perfect chance to chat through your questions, receive personalised advice, and check you’re making the most of the support and reliefs available to you. We’d be delighted to welcome you.

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Internet Link – Tax on savings interest: How much tax you pay – GOV.UK