Savings Interest Tax in 2026/27: How Much Is Tax-Free and What to Do Before the April 2027 Rise

In 2026/27, most basic-rate taxpayers can earn £1,000 of savings interest before paying any tax. Higher-rate taxpayers get £500, and additional-rate taxpayers get nothing. Low earners can shelter a lot more through the starting rate for savings. The headline change: from 6 April 2027, the tax on interest above those allowances rises by 2 percentage points — to 22%, 42% and 47%, depending on your tax band.

That sounds alarming, but for most people it isn't. Over 90% of UK taxpayers pay no savings tax at all, according to GOV.UK. This guide explains how much interest is tax-free right now, how the allowances actually work, who the 2027 rise will hit, and the calm, sensible moves to make before it lands.

How much savings interest is tax-free in 2026/27

There are two separate allowances, and you can use both. They stack.

1. The Personal Savings Allowance (PSA). This is the main one. As of 2026/27 it's:

• £1,000 if you're a basic-rate taxpayer (income up to £50,270)
• £500 if you're a higher-rate taxpayer (income £50,271–£125,140)
• £0 if you're an additional-rate taxpayer (income above £125,140)

Interest within your PSA is taxed at 0%. Source: GOV.UK.

2. The starting rate for savings. This is a separate £5,000 band of interest taxed at 0%, aimed at low earners. You get the full £5,000 only if your non-savings income (from work or pension) is at or below your £12,570 Personal Allowance. For every £1 you earn above £12,570, you lose £1 of the starting rate. So once your other income hits £17,570, the starting rate is gone. Source: GOV.UK and the Low Incomes Tax Reform Group.

In plain terms: if you have low earnings, you can potentially receive £5,000 (starting rate) plus £1,000 (PSA) of interest — up to £6,000 — without paying a penny of tax. If you're a typical full-time earner, the starting rate usually doesn't apply, and your tax-free interest is just the £1,000 or £500 PSA.

A worked example: how much you'd need saved before tax bites

Allowances feel abstract until you put pounds on them. Here's the maths at a 4% interest rate, roughly what app-based easy-access savings pay in mid-2026.

• Basic-rate taxpayer (£1,000 PSA): at 4%, £25,000 of savings earns £1,000 of interest — exactly the allowance. So you'd need more than £25,000 in standard (non-ISA) savings before any of your interest is taxed.
• Higher-rate taxpayer (£500 PSA): at 4%, £12,500 earns £500. So tax starts once your savings pass roughly £12,500.

If rates were higher — say 5% — those thresholds fall (£20,000 for basic-rate, £10,000 for higher-rate), because the same pot earns more interest. The point holds: it's the interest, not the savings balance, that's measured against your allowance.

This is why most people never pay savings tax. But if you've built a healthy cash buffer, sold a property, or rates climb, you can cross the line faster than you'd think — especially as a higher-rate taxpayer with only £500 of headroom.

What's changing in April 2027 — and who it hits

In the Budget on 26 November 2025, the government announced that tax on savings income will rise by 2 percentage points across all bands from 6 April 2027:

A few things to keep in mind:

• The allowances aren't changing. The £1,000 / £500 PSA and the £5,000 starting rate still apply. Only the rate charged on interest above them goes up.
• It only bites if you already pay savings tax. If your interest stays inside your allowances, the rise costs you nothing.
• The extra cost is modest for most. A basic-rate taxpayer with, say, £1,500 of interest pays tax on £500 of it. The 2-point rise turns a £100 bill into £110 — an extra £10 a year. The pain grows with bigger taxable interest and higher tax bands.

The government's stated reason is fairness: people with savings, property or dividend income don't pay National Insurance on it, so it's taxed more lightly than wages. The rise narrows that gap. Whether you agree or not, the practical question is what to do about it.

What you can do before April 2027

This is information, not personalised advice — but here are the well-established, legitimate options savers use.

1. Use an ISA — the obvious shelter. All interest earned inside an ISA is entirely tax-free, and that doesn't change in 2027. Moving savings into a Cash ISA, or longer-term money into a Stocks and Shares ISA, takes the interest out of the taxable system completely. For most savers worried about this rise, the ISA is the answer.

One important link to the other big 2027 change: the Cash ISA allowance for under-65s is being cut to £12,000 a year from April 2027, though the overall £20,000 ISA allowance is unchanged. If you're a committed cash saver, the 2026/27 tax year is the last chance to put the full £20,000 into a Cash ISA. We cover this in detail in our guide to the Cash ISA allowance cut to £12,000 — read it alongside this one.

2. Spread savings between spouses or partners. Each adult has their own PSA and starting rate. A couple where one partner has used up their allowance can hold more savings in the lower-earning partner's name to use that person's allowance. This is a common, legitimate approach, but it only works if you genuinely share or gift the money — the savings belong to whoever's name they're in.

3. Premium Bonds, in context. Premium Bonds from NS&I pay no interest; instead they enter a monthly prize draw, and any prizes are tax-free. They sit outside the PSA entirely. That can appeal once your savings allowances are used up, but the average return is just that — an average. Many people win nothing for long stretches, so don't treat the headline prize rate as a guaranteed yield. Useful as one tool, not a savings plan on its own.

4. Consider investing longer-term money. Money you won't need for five years or more doesn't have to sit in cash at all. A Stocks and Shares ISA shelters both growth and dividends from tax. The trade-off is real: investments fall as well as rise, and you could get back less than you put in. Cash is still the right home for your emergency fund and anything you'll need soon.

Where to shelter the money

If the 2027 rise is nudging you toward an ISA, two providers we rate fit this situation well. Both are free to open, and you don't have to invest the moment you transfer — cash can sit in the wrapper until you decide. For the full line-up, see our best investing apps UK pillar guide.

Use ISAs because they fit your plan, not out of panic. For most people the savings tax rise is a small annual cost; the ISA simply removes the question entirely.

FAQ

How much savings interest is tax-free in 2026/27? Basic-rate taxpayers get £1,000 tax-free under the Personal Savings Allowance, higher-rate taxpayers £500, and additional-rate taxpayers nothing. Low earners can also use the starting rate for savings — up to £5,000 at 0% — on top of that.

What's changing to savings tax in April 2027? From 6 April 2027, tax on interest above your allowances rises by 2 percentage points: 20% to 22% (basic), 40% to 42% (higher) and 45% to 47% (additional). It was announced in the 26 November 2025 Budget.

Does the savings tax rise affect ISAs? No. All interest inside an ISA is entirely tax-free, and that isn't changing. The rise only applies to interest on savings held outside an ISA, above your allowances.

How much would I need saved before I pay tax? At around 4% interest, a basic-rate taxpayer would need more than £25,000 in non-ISA savings before the £1,000 allowance runs out. A higher-rate taxpayer reaches the £500 limit at around £12,500. Above that, the excess is taxed at your savings rate.

Is the Cash ISA allowance also changing? Yes, separately. From April 2027, under-65s can pay at most £12,000 a year into a Cash ISA, though the overall £20,000 ISA allowance is unchanged. See our Cash ISA allowance cut guide for what to do.

This is general information, not financial advice. Tax rules and rates are as announced in the November 2025 Budget and could change before they take effect — always check GOV.UK for the latest. Investing puts your capital at risk; you may get back less than you put in. Do your own research and consider speaking to a qualified adviser about your situation.

Last updated: 17 June 2026.