With savings rates having improved in recent years, many people are earning more interest on their savings than they have for some time. While this is positive news for savers, it also means some individuals may now be exceeding the tax-free limits on savings interest without realising it.
In this blog, Lee Bradley, Tax Partner at Bevan Buckland, explains the simple rules around the Personal Savings Allowance and why it may be worth reviewing your savings to ensure you are making the most of your ISA allowance before the end of the tax year on 5 April 2026.
The Personal Savings Allowance
If you have savings that are not held in an ISA, the interest earned may be taxable once it exceeds the Personal Savings Allowance.
For most people, the allowance is:
- £1,000 of interest tax-free for basic rate taxpayers
- £500 of interest tax-free for higher rate taxpayers
- £0 allowances for additional rate taxpayers
If the interest earned on your savings goes above these limits, the excess will be subject to income tax. Banks and building societies automatically report interest earned to HMRC, meaning any tax due may be collected through your tax code or via a tax calculation.
Consider holding savings in an ISA
A simple way to avoid paying tax on savings interest is to hold your savings in an Individual Savings Account (ISA). Any interest earned within an ISA is completely tax-free, regardless of how much you earn. Remember the maximum that can be paid into an ISA for 2025/26 is £20,000.
If you currently hold savings in standard accounts, it may be worth considering moving some of those funds into an ISA to ensure the interest remains tax-free.
Use your allowance before 5 April 2026
Your ISA allowance is “use it or lose it” each tax year and cannot be carried forward.
With the current tax year ending on 5 April 2026, now is a good time to review your savings and make sure you have used your ISA allowance where possible.
If you would like to find out more about how the savings interest rules may affect you, or discuss your tax position, please call us on 01792 410100 or email mail@bevanbuckland.co.uk.
