New Budget documents have confirmed that the government is increasing all rates of income tax applied to savings income by 2 percentage points, with the changes taking effect from 6 April 2027.
The savings basic rate will rise to 24%, the savings higher rate to 44%, and the savings additional rate to 49%. These rates will apply across the UK and will be legislated for in Finance Bill 2026-27.
What the new rates mean for savers
Any savings interest outside of tax-free ISA accounts will be taxed at 24%, up from 22% for a basic rate taxpayer. Those earning more than £50,270 will face a 44% rate, up from 40%, while those earning over £125,140 will be taxed at 49%.
Tax firm Blevins Franks explained: “The basic and upper rates of tax on dividend income increased by 2 percentage points from 6 April. A similar tax increase on savings income will take effect a year later [from April 2027].”
Impact on households and allowances
Savings tax applies to interest on savings which sits outside your annual Personal Savings Allowance (PSA), with the exact amount depending on your income. Paragon Bank said this tax rise could lead to tax increases for some households.
Paragon Bank explained: “From April 2027, the tax rates applied to savings income outside of ISAs are set to increase. The savings basic rate will rise to 22%, the higher rate to 42%, and the savings additional rate to 47% for the 2027 to 2028 tax year. Despite these changes, the Personal Savings Allowance (PSA) is staying in place.”
Basic-rate taxpayers can still earn up to £1,000 of savings interest each tax year outside of an ISA before tax may be due. Higher-rate taxpayers receive a £500 allowance, while additional-rate taxpayers do not receive a personal savings allowance.
Examples and pensioner considerations
For those earning under £50,270, the £1,000 PSA means interest above that threshold is taxed at 20%, rising to 22% from April 2027. For example, someone earning £2,000 of savings interest as a basic rate taxpayer faces a £200 bill on £1,000 of interest, which becomes £220.
State pensioners will also be affected. While they retain their full £20,000 Cash ISA limit, any savings generating in excess of £1,000 interest outside of an ISA will be liable to tax. A state pensioner on a low income could use the Starting Rate for Savings to generate as much as £5,000 of tax-free savings interest, but those still working or receiving larger income through savings, investments or property income will not be able to use this allowance.
Paragon Bank advised savers to check their latest savings statements and estimate how much interest they expect to earn over the tax year. If it looks likely to exceed their allowance, they may want to consider moving some savings into a cash ISA, where interest is tax-free. Paragon’s range of ISAs is flexible, so any withdrawals can be replaced within the same tax year without affecting the annual ISA allowance.
Blevins Franks also set out recommendations for savers, stating: “Now is the time to make sensible adjustments over the coming months so you are well-placed for the significant reforms arriving in April 2027 and beyond. Given the breadth of UK tax changes over recent years and the complexity they introduce, obtaining personalised, professional guidance is increasingly important.”
