How tax on savings interest actually works

Blooom shows the interest your savings earn, but it doesn't work out the tax on it — whether you owe anything depends on your wider income, and it's settled through your own Self Assessment tax return. This lesson explains the mechanics so you can understand your own position.

Your Personal Savings Allowance

Most people can earn some savings interest tax-free each year through the Personal Savings Allowance: £1,000 if you're a basic-rate taxpayer, £500 at the higher rate, and nothing once you're an additional-rate taxpayer. Crossing from basic into higher rate halves it. Interest inside an ISA is separate — it's always tax-free and doesn't use this allowance.

The starting rate for savings

On top of that, lower earners get a special £5,000 "starting rate" band where savings interest is taxed at 0%. It shrinks by £1 for every £1 of other income above your £12,570 personal allowance, so it's fully gone once your non-savings income reaches £17,570. It mainly helps people with modest wages or pensions and large savings.

When interest straddles a tax band

Savings interest sits on top of your other income. If your income is near the £50,270 higher-rate threshold, a chunk of interest can fall in the basic-rate band and the rest in the higher-rate band — so the same interest can be taxed partly at one rate and partly at another. This is exactly the kind of person-specific calculation we leave to your tax return.

The £100,000 personal-allowance taper

Once your income tops £100,000, your £12,570 personal allowance is reduced by £1 for every £2 over the limit, disappearing entirely at £125,140. Extra income in that band — including savings interest — can therefore be taxed at an unusually high effective rate.

This is general information, not personal tax advice. Your actual position depends on your full circumstances and is worked out through Self Assessment — HMRC's own guidance and the gov.uk tools are the place to confirm what you owe.