The short version: Savings interest is what the bank pays you for keeping money in a savings account. It’s taxable income, but most people don’t pay tax on it thanks to various allowances.
How is it taxed?
Banks now pay interest gross (without deducting tax). Whether you owe tax depends on your total income. Basic rate taxpayers get a Personal Savings Allowance. Higher rate taxpayers get a smaller one. Additional rate taxpayers get none.
What if your interest is above the allowance?
You’ll owe tax on the excess. HMRC might collect it by adjusting your tax code, or you might need to declare it through Self Assessment.
What about ISAs?
Interest in ISAs is completely tax free and doesn’t count towards your allowance. If you’re earning decent interest, maximising your ISA is sensible.
Earning more interest than usual and not sure about tax? Ask us how it affects your situation.
