Savings Interest Tax Calculator, 2026/27

How this is calculated

Savings income sits on top of your other income in HMRC's tax stacking order, above salary, self-employment profit and pension income, but below dividends. This calculator first establishes your personal savings allowance from your other income, then taxes any interest above that allowance at whichever bands it falls into.

Where interest straddles the basic and higher rate boundary, part is taxed at 20% and the remainder at 40%, and the same logic extends into the 45% additional rate band above £125,140 of total income.

This differs from the personal savings allowance calculator elsewhere on this site, which only shows how much interest is tax-free. This calculator goes further and computes the actual cash tax bill on the taxable slice.

Interest versus dividends for directors

Directors holding surplus cash sometimes compare leaving money on deposit for interest against extracting it as dividends. Interest is taxed at the normal income tax rates shown here, while dividends benefit from a lower dividend allowance but also lower rates than equivalent salary.

The comparison depends heavily on the individual's total income and how much headroom is left in each band, so there is no single right answer without running both calculations.

Reducing tax on interest

Using ISA allowances first removes interest from tax altogether, and premium bond prizes are also tax-free, both of which reduce the amount exposed to this calculation. Spreading savings between spouses or civil partners to use two personal savings allowances, rather than concentrating them in one name, can also help.

For larger cash balances, fixed-term products that pay interest annually rather than monthly can sometimes be timed to fall more efficiently across tax years, though this needs weighing against the commercial terms of the product itself.

Where does savings interest sit in the tax calculation?

Interest is taxed after non-savings income such as salary and self-employment profit, but before dividends, so it can be pushed into a higher band even if your salary alone would not reach it.

Do I pay tax on interest earned in an ISA?

No. Interest within an ISA is entirely tax-free and does not appear in this calculation at all.

How is tax on interest actually collected?

For most people it is collected through a tax code adjustment based on interest reported by banks to HMRC. Anyone already completing a self-assessment return should include the interest and settle the tax through the return instead.

Is interest taxed differently for directors than employees?

No, the rates and allowances are the same for everyone. What differs for directors is the comparison against taking money out as dividends instead of holding it on deposit.