Do I Have to Pay Tax on My Savings in the UK
A 2025/26 Guide for Individuals and Companies
Published by Savings UK Ltd (STOCKEXCHANGE.EU)
Saving money in a UK bank or building society account can generate valuable interest income, but an important question for savers and investors is: Do I have to pay tax on my savings?
The answer is: sometimes.
For the UK tax year 2025/26, running from 6 April 2025 to 5 April 2026, the tax treatment of savings interest depends on who owns the money, how much interest is generated, the investor’s other income and, for companies, the company’s taxable profits.
Savings interest can arise from ordinary savings accounts, notice accounts, fixed-term deposits, cash deposits and certain other interest-bearing investments. HM Revenue & Customs (HMRC) generally treats interest as taxable income unless a specific exemption or allowance applies.
1. Is interest from a UK savings account taxable?
Interest from UK bank and building society accounts is generally taxable for individuals, but this does not necessarily mean that you will actually pay tax.
The UK tax system provides several allowances that can shelter savings interest from Income Tax.
For 2025/26, the main allowances relevant to individuals include:
- Personal Allowance: £12,570
- Starting Rate for Savings: up to £5,000 in qualifying circumstances
- Personal Savings Allowance: £1,000 for basic-rate taxpayers
- Personal Savings Allowance: £500 for higher-rate taxpayers
- Personal Savings Allowance: £0 for additional-rate taxpayers
The standard Personal Allowance is reduced for individuals with adjusted net income above £100,000 and can eventually fall to zero.
Therefore, a person earning interest from a savings account does not automatically have a tax bill.
2. Personal Savings Allowance for 2025/26
The Personal Savings Allowance (PSA) is particularly important for UK individual savers.
For 2025/26:
| Taxpayer | Personal Savings Allowance |
|---|---|
| Basic-rate taxpayer | £1,000 |
| Higher-rate taxpayer | £500 |
| Additional-rate taxpayer | £0 |
For example, if a basic-rate taxpayer receives £800 of savings interest during 2025/26, the interest can generally fall within the £1,000 Personal Savings Allowance.
If the same taxpayer receives £1,500, the first £1,000 may be covered by the PSA, leaving £500 potentially taxable at the applicable savings rate.
HMRC confirms that the PSA applies to interest from bank and building society accounts and various other savings and investment products.
3. What if I am a higher-rate taxpayer?
Higher-rate taxpayers receive a smaller Personal Savings Allowance.
For 2025/26, the allowance is £500.
Suppose an individual receives:
- Salary and other taxable income: £70,000
- Savings interest: £3,000
Because the individual is a higher-rate taxpayer, up to £500 of the savings interest may be covered by the PSA. The remaining £2,500 is potentially taxable at the applicable savings Income Tax rate.
For 2025/26, the main savings rates are:
- Basic rate: 20%
- Higher rate: 40%
- Additional rate: 45%
The exact amount payable depends on the individual’s complete income position.
4. What about fixed deposits?
A fixed-term deposit or fixed-rate savings account is not automatically tax-free simply because the money cannot be withdrawn immediately.
If the product generates taxable interest, the interest generally needs to be considered for tax purposes.
HMRC’s rules focus on when interest arises. Interest can arise when it is received or when it is credited to an account and made available to the account holder. Specific rules can apply to products where interest is not accessible until maturity.
For example, imagine an individual places £50,000 into a one-year fixed deposit at 5%.
The gross interest would be:
£50,000 × 5% = £2,500
Whether tax is actually payable depends on the individual’s other income and available allowances.
A fixed deposit therefore should not automatically be described as “tax-free” simply because the interest is paid at maturity.
5. Are ISAs different?
Yes.
Interest generated within a qualifying Individual Savings Account (ISA) is generally protected from Income Tax, subject to ISA rules and limits.
The ISA subscription limit for 2025/26 is £20,000.
This means that savers comparing a conventional savings account with a Cash ISA should consider the after-tax return, rather than looking only at the advertised interest rate.
For example, a taxable savings account offering a higher headline rate may produce less after-tax income for a higher-rate taxpayer than a tax-free ISA.
6. What about companies and corporate investors?
The position is different when savings belong to a company rather than an individual.
A UK company does not normally use the Personal Savings Allowance that applies to individuals.
Instead, interest received by companies generally falls within the Corporation Tax/loan relationship rules. HMRC specifically states that company interest income is dealt with under the loan relationship rules rather than the individual Savings and Investment Manual.
Consequently, a company placing surplus cash into:
- Business savings accounts
- Corporate fixed deposits
- Term deposits
- Interest-bearing bank accounts
should generally account for the resulting interest in determining its taxable profits.
For the financial year beginning 1 April 2025, the Corporation Tax framework includes:
- 19% small profits rate where applicable for profits up to £50,000
- 25% main rate for profits above £250,000
- Marginal Relief for qualifying profits between £50,000 and £250,000
The thresholds can be affected by associated companies and accounting-period rules.
Example: company fixed deposit
Suppose a UK company places £500,000 into a fixed deposit and receives £25,000 interest during its accounting period.
The £25,000 is not generally treated like an individual’s savings allowance.
Instead, it forms part of the company’s relevant taxable income/profits under the corporate tax rules.
The eventual Corporation Tax position will depend on the company’s overall circumstances, accounting period, other taxable profits, associated companies and applicable reliefs.
Companies should therefore avoid applying the £1,000 or £500 Personal Savings Allowance to corporate deposits.
7. What about non-UK individuals?
UK tax treatment can become more complicated for individuals who are not UK resident.
The taxation of UK savings interest for a non-UK resident can depend on residence status, the source of the income, the type of account or investment and any applicable double-taxation agreement.
The fact that money is held in a UK bank does not mean that every non-UK resident will necessarily have the same tax liability as a UK resident.
Non-UK residents should therefore consider both UK rules and the tax rules of their country of residence before making substantial deposits.
8. Does the bank deduct tax automatically?
Not necessarily.
Many UK savers receive savings interest without tax being deducted at source. HMRC explains that tax on savings interest can instead be collected through Self Assessment, tax-code adjustments or other HMRC processes, depending on the taxpayer’s circumstances.
If an individual receives taxable interest, it is important not to assume that “no tax was deducted” means “no tax is due.”
For individuals completing Self Assessment, savings interest may need to be reported on the tax return.
9. Quick comparison: individuals vs companies
| Feature | Individual Saver | Corporate Investor |
|---|---|---|
| Ordinary savings account | Interest potentially taxable | Interest generally taxable within corporate tax rules |
| Fixed-term deposit | Interest potentially taxable | Interest generally included under corporate tax rules |
| Personal Savings Allowance | Yes | No |
| Basic-rate PSA 2025/26 | £1,000 | Not applicable |
| Higher-rate PSA 2025/26 | £500 | Not applicable |
| Additional-rate PSA | £0 | Not applicable |
| ISA protection | Available to qualifying individuals | Not generally available |
| Main tax mechanism | Income Tax | Corporation Tax |
| 2025/26 basic savings rate | 20% | Corporate tax rates depend on taxable profits |
| 2025/26 higher savings rate | 40% | Not applicable to companies as individual savings rates |
| 2025/26 additional savings rate | 45% | Not applicable |
| Fixed deposit tax treatment | Depends on individual circumstances | Depends on company tax position |
| Non-UK resident | Special rules may apply | Residence and permanent-establishment considerations may apply |
10. How can savers reduce unnecessary tax?
Tax planning does not necessarily mean avoiding tax; it means understanding the rules and using legitimate allowances and tax-efficient structures.
Individuals may consider:
Using ISA allowances: Where appropriate, an ISA can shelter qualifying savings interest from Income Tax.
Managing cash across products: Savers may compare taxable deposits with tax-free savings products.
Understanding tax bands: A person’s overall income can determine whether they receive a £1,000, £500 or £0 Personal Savings Allowance.
Considering timing: The tax year runs from 6 April to 5 April, so the timing of interest and maturity can matter.
Companies should separately consider their corporate tax position, cash-management requirements and the accounting treatment of interest income.
Conclusion
So, do you have to pay tax on your savings in the UK?
Not necessarily.
For individual savers during the 2025/26 tax year, the answer depends primarily on total income, savings interest and available allowances. A basic-rate taxpayer can generally receive up to £1,000 of interest under the Personal Savings Allowance without Income Tax on that amount, while the allowance is £500 for higher-rate taxpayers and £0 for additional-rate taxpayers.
Fixed deposits are not automatically tax-free, and companies do not receive the individual Personal Savings Allowance. Corporate interest is generally considered under the company tax rules.
The most important point is to calculate the after-tax return, rather than simply comparing headline savings rates.
For substantial deposits, corporate cash balances, complex investment structures or non-UK residency, professional tax advice should be considered because individual circumstances can materially change the tax outcome.
This article is for general educational and informational purposes and should not be treated as personal tax, investment or legal advice. Tax rules can change, and readers should verify their circumstances with HMRC or a suitably qualified professional.
Source: HM Revenue & Customs (HMRC), UK Government guidance on savings interest, Income Tax and Corporation Tax.
