How the three UK savings allowances stack, the pound-for-pound starting-rate taper, and why Scottish taxpayers keep the UK thresholds on interest.
HMRC applies three allowances to savings interest in a fixed order — any Personal Allowance your wages have not used, then a starting rate for savings worth up to £5,000 on low incomes, then the Personal Savings Allowance of £1,000 at basic rate and £500 at higher rate — and most people's interest never gets past them, so no tax is due. Interest earned inside an ISA is never counted at all. This hub collects the savings calculators as they are built and explains the rules they read from; the statutory figures on this page come from the same configuration the calculators use, checked against GOV.UK.
| Tax/source year | 2026/27 |
|---|---|
| Region | UK-wide: savings interest is taxed on the UK bands and thresholds in every UK nation, including for Scottish taxpayers |
| Account rates | Never assumed. Any interest rate in a savings calculation is an input you set, stated beside the result. |
| Your other income | Wages and pension income decide how much Personal Allowance and starting rate are left for interest, and which Personal Savings Allowance band applies. |
|---|---|
| The interest itself | Interest counts towards the income that sets your band, so a large interest year can shrink the allowance that was meant to cover it. |
| The account's wrapper | The same balance at the same rate is taxed outside an ISA and untouched inside one; the wrapper, not the rate, decides whether the allowances are needed. |
| What is not decided here | PayBreakdown does not decide payroll correctness, lender approval, benefit entitlement or employer compliance, and does not give regulated financial, mortgage, debt, tax, payroll or legal advice. |
|---|
HMRC fixes the order, and it works in your favour. Interest first uses any Personal Allowance left unused by wages, pension or other income. It then uses the starting rate for savings: up to £5,000 of interest at 0%, but every pound of other income above the Personal Allowance removes a pound of it, so it has shrunk to nothing by the time other income reaches £17,570. Whatever interest remains uses the Personal Savings Allowance for your tax band. Only interest left after all three is taxed, at the ordinary savings rates.
GOV.UK's own worked example: £16,000 of wages and £200 of interest. The wages sit £3,430 above the Personal Allowance, which cuts the starting rate from £5,000 to £1,570 — comfortably more than the interest, so the tax due is £0. The engine behind this section reproduces that arithmetic exactly, and holds it as a permanent test.
The allowance is £1,000 a year if your total income keeps you at basic rate, £500 at higher rate, and nothing at additional rate. Two details catch people out. First, the interest itself counts towards the income that sets your band — a large interest year can push your total over a band edge and shrink the allowance that was meant to cover it. Second, for Scottish taxpayers the band is decided by the UK thresholds, not the Scottish ones: savings interest is taxed on the same UK bands and rates everywhere in the UK, because Scottish rates apply to wages and pensions rather than to interest. A Scottish taxpayer paying Scottish higher rate on their salary can still hold the full £1,000 allowance while their total income sits below the UK higher-rate threshold. Many calculators get that wrong; the engine here encodes it and tests it.
Interest on money inside an ISA is not taxed and does not use up any of the allowances above — it sits outside the calculation entirely rather than being covered by an allowance within it. You can pay up to £20,000 into ISAs in a tax year. Whether an ISA beats an ordinary savings account is a genuine question rather than a rule: an ordinary account paying a higher rate can win while your interest fits inside the Personal Savings Allowance, and stop winning the moment it does not. That comparison is exactly what the ISA-vs-savings calculator linked from this page works through, breakeven included.
Nine calculators are live and linked from this page. For growing money: a savings calculator for how a balance grows with monthly deposits, a savings goal calculator that works a target in both directions, and a regular saver calculator that prints the month-by-month drip to the penny. For the tax side: a savings interest tax calculator built on the engine described above — including the reverse questions of where tax begins, and the cliff — and an ISA-versus-ordinary-savings comparison with the breakeven both ways. For the schemes and the safety net: the Lifetime ISA bonus and withdrawal charge worked honestly, Help to Save's highest-balance bonus modelled exactly, an emergency fund sized from your own essentials, and a Premium Bonds calculator that puts the median year beside the advertised average.
The deliberate limit: this section never asserts a market interest rate. Rates change weekly, and a page that states one is wrong by the time it is read. The rate on your account is always an input you set, with the assumption printed beside every result — the same rule the mortgage and debt calculators here already follow.
Change any figure above and the result moves with it. A payslip can differ from any calculator because payroll works pay period by pay period, so a tax-code change, a bonus, arrears or a refund can land in one month and not the next. See how each deduction is worked out.
Most people do not, because the allowances above cover their interest in full. Tax becomes likely where large balances meet higher incomes, and the squeeze comes from both sides at once: a higher band means a smaller allowance, and interest is itself part of the total that positions you in a band. If tax is due, you rarely have to do anything — see the collection question below.
The UK ones. Scottish income tax rates apply to wages, pension and most other taxable income, but GOV.UK's rule for savings interest is that you pay the same tax on it as the rest of the UK — so the rates charged on interest and the thresholds that set your Personal Savings Allowance both follow the UK bands, whatever rate your salary pays.
No. The £20,000 figure caps what you can pay in during a tax year — it is a limit on deposits, not on interest. Once money is inside, the interest it earns is tax-free without any ceiling, however large the pot grows over the years.
If you are employed or receive a pension, HMRC usually changes your tax code to collect it from your pay — working from an estimate of this year's interest based on what you earned last year. If you complete Self Assessment, you report the interest there instead. If neither applies, your bank or building society tells HMRC what it paid you, and HMRC will contact you about whether there is tax to pay and how to pay it.
Last updated 2026-08-28. Checked by Sean Elsmore. Rates last checked against GOV.UK on 2026-08-07. Estimates are for planning and should be checked against official records where the decision matters.