Do I have to pay tax on my savings?

As a source of income, you might need to pay tax on interest you earn from your savings. However, there are tax-free allowances you can take advantage of.

What counts as savings income?

You might need to declare and pay tax on:

Interest earned on non-ISA savings accounts and current accounts
Income from corporate bonds and government bonds
Interest distributions from authorised unit trusts, open ended investment companies and investment trusts.

ISAs are usually tax free, although savings are capped by your ISA allowance.

Your personal savings allowance

If you’re a UK taxpayer, you could benefit from a tax-free personal savings allowance (PSA). Your PSA depends on your income and tax bracket:

Basic-rate taxpayers (20%) – up to £1,000 of earned savings interest is tax free.
Higher-rate taxpayers (40%) – up to £500 of earned savings interest is tax free.
Additional-rate taxpayers (45%+) – no tax-free savings allowance.

More on your PSA

Tax-efficient savings

In addition to a personal savings allowance, if you’re a UK taxpayer, you could take advantage of an ISA allowance. In the current tax year, this can be used to save and earn tax-free interest on up to £20,000.

There are several ISA types available. At Halifax, we offer both cash ISAs and stocks and shares ISAs.

See available ISAs

Declaring and paying tax

It’s your responsibility to report and pay tax on any interest earned over and above your allowances.

If you complete a self-assessment tax return, make sure you include all forms of income when calculating any tax owed. That includes any savings interest you’ve earned

Banks and other financial providers are not always required to deduct tax from any interest you earn. What they will do though, is report any interest earned to HM Revenue & Customs (HMRC) at the end of each tax year. HMRC might use this information to change your tax code to collect any tax due throughout the year. They may adjust your tax code even if you complete a self assessment return.