What is Bank Interest Tax? UK Definition 2026/27
Quick Answer
Tax on interest earned from savings accounts, paid at your marginal rate.
Definition of Bank Interest Tax
Interest earned on savings is taxable income in the UK. Since April 2016, banks pay interest gross (without deducting tax). The Personal Savings Allowance lets basic rate taxpayers earn £1,000 interest tax-free (£500 for higher rate, £0 for additional rate). Interest above this is taxed at your marginal rate.
Bank Interest Tax — Key Facts for 2026/27
| PSA (basic rate) | £1,000 |
| PSA (higher rate) | £500 |
| PSA (additional) | £0 |
| Starting rate band | £5,000 at 0% |
How Bank Interest Tax Works — Example
- 1Savings interest earned: £1,500
- 2Basic rate taxpayer PSA: £1,000
- 3Taxable interest: £500
- 4Tax at 20%: £100
- 5Higher rate: £1,500 - £500 PSA = £1,000 at 40% = £400
How Bank Interest Tax Affects Your Tax
Most basic rate taxpayers with modest savings pay no tax on interest thanks to the PSA. Higher earners should consider ISAs to protect interest from tax. The starting rate band can help low earners.
Official HMRC Guidance on Bank Interest Tax
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Tax on savings interestFrequently Asked Questions about Bank Interest Tax
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.