Tax on savings and investments Tax on savings

pink piggy bank

Interest from savings accounts is no longer taxed at source by your bank or building society 

From April 2016, there's a new personal savings allowance. Interest on savings is tax free, to a threshold of £1,000 for basic-rate (20%) taxpayers, and £500 for those who pay higher-rate tax. 

Tax will no longer be deducted by your bank or building society and all interest will be paid gross. 

If the interest your receive from all sources exceeds the £1,000 limit (£500 for 40% taxpayers), any tax due will be collected through a self-assessment tax return or via an adjustment in your PAYE tax code.   

Tax on savings: claiming tax back

For taxed interest received between April 2015 and 2016, if you are a non-taxpayer, because your total income from all sources comes to less than your personal allowance - £10,600 for the 2015/16 tax year - you can claim back tax that has been deducted by completing form R40 (available from HMRC), or a self-assessment tax return. After April 2016 tax will no longer be deducted at source- so claiming it back is no longer necessary. 

Tax on savings: when do you need to pay it? 

The basic rate of tax is currently 20% for income from employment, property and pensions. Depending on how much you receive, income from these sources is taxed at either 20%, 40% or 45%.  

From April 2015, a £5,000 tax-free (0%) savings income band has applied in addition to the £10,600 personal allowance. This remains in place for 2016-17.  

To calculate if tax is due on your savings income, set any non-savings income against your personal allowance (for 2016-17 this is typically £11,000). If non-savings income exceeds your personal allowance, deduct the excess from the £5,000 savings income band to see how much of this you have left. 

Set your savings income against the remainder of the band plus a further tax-free £1,000/£500 of personal savings allowance. If all your savings income falls within this, you have no tax to pay on it.  If your savings income exceeds what's left, only the amount within the band is tax-free, with any excess interest being taxable.

More on this...

Last updated:

April 2016

Updated by:

Ian Robinson


Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.