Savers are being urged to prepare for changes next year that will increase the amount of tax some people pay on interest earned from their savings.
From April 6, 2027, the basic rate of tax on savings income will rise from 20 per cent to 22 per cent, while the higher rate will increase from 40 per cent to 42 per cent. The additional rate applied to savings income will also increase from 45 per cent to 47 per cent.
The changes were announced by the UK Government at the November 2025 Budget and will apply from the start of the 2027/28 tax year.
Personal Savings Allowance unchanged
HM Revenue and Customs (HMRC) has confirmed the existing Personal Savings Allowance will remain unchanged.
This currently allows basic-rate taxpayers to receive up to £1,000 of savings income each year without paying tax on it, while higher-rate taxpayers have an allowance of £500. Additional-rate taxpayers do not receive a Personal Savings Allowance.
The changes mean people whose savings interest exceeds their available tax-free allowances could face a higher bill from next April.
Financial planning firm Evelyn Partners is urging households to review their arrangements ahead of several tax changes already scheduled for 2027 rather than becoming distracted by speculation about measures that could be announced in next month's Budget.
Emma Sterland, Chief Financial Planning Director at Evelyn Partners and Managing Director of NatWest Private Banking & Wealth Management, said: “It’s entirely possible that some of these changes have gone under the radar of even the most financially astute households, especially those measures which are yet to take force.
“We think this is a good time to take stock, cut through any pre-Budget noise that arises in the coming weeks and review your financial and legal arrangements so they are both fit-for-purpose in the current landscape and also prepared for the changes that are due next April.”
Interest rates and frozen thresholds
Interest rates on savings accounts remain significantly higher than during the years of ultra-low interest rates, meaning more people can potentially exceed their Personal Savings Allowance.
Evelyn Partners highlighted HMRC estimates showing the amount of Income Tax liability attributed to savings interest has risen significantly in recent years.
Ms Sterland said: “At the same time the personal savings allowances have been frozen since their inception more than 10 years ago at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and zero for those subject to the additional rate.”
She added frozen Income Tax thresholds can also result in savers moving into higher tax bands, potentially reducing the Personal Savings Allowance available to them.
How tax on savings interest works
Tax may be due on interest from accounts including bank and building society accounts, savings and credit union accounts and some other savings products.
Interest earned within an Individual Savings Account (ISA) is tax-free and does not count towards the Personal Savings Allowance.
For most people employed or receiving a pension through PAYE, HMRC will normally change their tax code to collect tax due on savings interest.
Banks and building societies report interest paid to customers directly to HMRC. People completing a Self Assessment tax return should report their savings interest through their return.
Starting rate for savings
Some people on lower incomes can also benefit from the starting rate for savings. This provides a zero per cent tax rate on up to £5,000 of savings income for eligible people.
HMRC has confirmed the £5,000 starting-rate limit will remain in place through to the 2030/31 tax year.
The amount someone can benefit from depends on their other income. People with up to £17,570 of income from sources other than savings and dividends may be able to receive some savings interest under the starting rate.
The maximum £5,000 starting rate is available where other income does not exceed the £12,570 Personal Allowance, with the amount reducing by £1 for every £1 of other income above that level.
Ways to protect savings interest from tax
Cash held within an ISA can earn interest free from Income Tax. The overall annual ISA allowance is currently £20,000, although separate changes to the amount younger savers can put into a Cash ISA are due to take effect from April 2027.
Evelyn Partners also highlighted married couples and civil partners may be able to make use of both partners' savings allowances.
Ms Sterland said where one partner pays a lower rate of tax, couples may consider which partner holds taxable savings, although transferring money means the recipient becomes its legal owner.
Premium Bond prizes from National Savings and Investments (NS&I) are also tax-free, although returns are not guaranteed and individual bondholders may win nothing.
Savers can check how much interest they are receiving across their accounts to establish whether they are likely to exceed their available tax-free allowance. The higher savings tax rates will take effect from April 6, 2027.
