Savings interest and tax
HMRC sometimes writes to savers about the interest their accounts have paid. A letter like that, or a change to a tax code, is part of how HMRC collects tax on interest above the tax-free allowances.
No bank, building society or similarly named company is connected with this page.
How HMRC knows about your interest
GOV.UK explains that after 5 April each year, banks and building societies report to HM Revenue and Customs (HMRC) the interest they paid each customer in the year before. HMRC adds together the interest from all of a person's accounts. For a joint account, it splits the interest equally between the holders, unless they contact HMRC to say it should be split differently.
How the tax is collected
Someone who already sends a Self Assessment tax return reports their savings interest there.
For people who are employed or get a pension, HMRC sends a tax calculation if there is tax to pay. GOV.UK says these usually go out between June and the following March, after the tax year ends. The calculation arrives as a letter or as a notice in the Personal Tax Account.
HMRC usually collects the tax through the tax code. The code may change to collect tax owed from the year before. It may also include an estimate of the interest expected in the current year.
Where someone has no tax code, or it cannot be changed, HMRC may send a Simple Assessment letter instead. It sets out how much is owed, how to pay and when to pay.
One duty falls on the saver. If you have tax to pay on savings interest and no letter has come by 31 March of the following tax year, you must contact HMRC.
Interest over £10,000 in a year has to go on a Self Assessment tax return. If a bank reports that much, HMRC sends a notice to file one. Anyone not already registered for Self Assessment will need to register.
If the numbers look wrong
The estimate in a tax code is based on what the banks reported for the previous year, and it shows in the Personal Tax Account. GOV.UK suggests comparing it with your average monthly interest, multiplied by 12. If the estimate looks wrong, contact HMRC, which then issues a new tax code.
When a tax calculation letter arrives, GOV.UK suggests checking it against your bank statements, and contacting HMRC if any amount looks wrong.
Whether tax is due at all
GOV.UK says, Most people can earn some interest from their savings without paying tax on it.
Whether you pay depends on three things: how much interest you earn, your other taxable income, and your tax-free allowances. The allowances reset each tax year, which runs 6 April to 5 April.
In the 2026 to 2027 tax year, interest above the allowances is taxed at the saver's usual rate of Income Tax. From April 2027, the government is raising the rates of Income Tax on savings income by 2 percentage points in every band.
The three allowances
The first is the Personal Allowance. If wages, a pension or other income do not use it all up, HMRC applies the rest to savings interest.
The second is the starting rate for savings. It is for savers whose other taxable income, not counting savings interest or dividends, falls below £17,570. For them, as much as £5,000 of interest can be tax-free. Every £1 of other income above the Personal Allowance reduces that £5,000 by £1.
The third is the Personal Savings Allowance, and its size is set by your Income Tax band. Basic rate taxpayers get £1,000, higher rate taxpayers £500, and additional rate taxpayers nothing. To find your band, add all the interest you have earned to your other income.
A saver can have the starting rate for savings and a Personal Savings Allowance in the same year.
ISAs
Interest earned inside an Individual Savings Account (ISA) is usually free of tax, GOV.UK explains, and so is the interest on some National Savings and Investments accounts.