John Healey announced in his October 2026 budget that the tax rates that apply to savings interest will be increasing with effect from April 2027.
Currently there are 3 rates of tax for interest received on savings accounts and these depend on which tax bracket you are in.
Current Rates (2026)
Basic rate taxpayers: 20%
Higher Rate Taxpayers: 40%
Additional Rate Taxpayers: 45%
Tax Free Allowance
However, you only have to pay tax on savings interest over your personal savings tax allowance which is as follows:
For non-taxpayers whose earnings are under £12,570, there is a savings tax allowance of £5,000. This essentially means that they can earn combined earnings and savings of £17,570 without having to pay tax.
This is classed as the starting rate for savings and actually applies to anyone who earns under £17,570, but they get a reduction for every £1 they earn over the personal allowance. For example, if you earn £14,750 from work then you will get £3,000 as the starting rate for savings.
You can get a starting rate for savings as well as a personal savings allowance. So you may have a total of £18,570 in tax free income if you have £12,570 in earnings and £6,000 in savings income.
For basic rate taxpayers, there is an allowance of £1,000 for savings interest.
For higher rate taxpayers there is an allowance of £500 for savings interest.
There is no savings tax allowance for additional rate taxpayers.
New Tax Rates from 2027
From 2025 the tax rates on savings interest will increase by 4% so the rates are as follows:
Basic rate taxpayers: 24%
Higher Rate Taxpayers: 44%
Additional Rate Taxpayers: 49%
This means that if you assume a gross rate of income of 4% on your savings then if you have over £25,000 in savings if you are a basic rate taxpayer, or £12,500 in savings if you are a higher rate taxpayer, then you are likely to have to pay some tax on your savings interest.
That tax is also going to be at a higher rate than your earnings so it might be advisable to put as much as you can into an ISA to reduce your tax liability (obviously you should take financial advice on your own individual circumstances).
E&OE