Last updated: 16 October 2026
The question
I’m about to become a higher rate taxpayer, so my savings interest will start to be taxed. How do I pay this to HMRC?
How is savings interest taxed for higher rate taxpayers?
The Personal Savings Allowance (PSA) lets you earn some interest tax-free each year. Higher rate taxpayers get £500, compared with £1,000 for basic rate taxpayers. Additional rate taxpayers get none. Interest above the allowance is taxed at your marginal rate, which is 40% for higher rate taxpayers in 2026/27.
Savings tax allowances for 2026/27
| Taxpayer | Personal Savings Allowance | Tax rate on excess interest |
| Basic rate | £1,000 | 20% |
| Higher rate | £500 | 40% |
| Additional rate | £0 | 45% |
There is also a starting rate for savings of up to £5,000 at 0%, but it only helps if your other income is below £17,570, so it does not apply to most higher rate taxpayers. From April 2027 the savings tax rates are due to rise by 2 percentage points to 22%, 42% and 47%.
How HMRC collects the tax
Banks and building societies pay interest gross and report it to HMRC. HMRC then collects the tax in one of these ways:
- Tax code: if you are employed or get a pension, HMRC usually estimates your interest and reduces your tax code, so the tax is collected through PAYE.
- Simple Assessment: HMRC may send a calculation after the year ends asking you to pay.
- Self Assessment: you must file a tax return if your savings and investment income is over £10,000, or if you already file for other reasons.
Check HMRC’s estimate. If rates have changed or you have moved money into ISAs, the estimate may be too high or too low.
Worked example
Tom has £30,000 in an easy-access account paying 4.5%, giving £1,350 of interest in 2026/27. As a higher rate taxpayer, his first £500 is tax-free. Tax on the remaining £850 at 40% is £340. HMRC adjusts his tax code to collect it.
Ways to reduce tax on savings
- Use your £20,000 ISA allowance. Interest in a cash ISA is tax-free.
- Premium Bond prizes are tax-free.
- Put savings in the name of a spouse or civil partner who pays less tax. This must be a genuine gift.
- Consider pension contributions, which can bring you back into the basic rate band and restore the £1,000 allowance.
- Fixed-rate bonds are taxed when interest is paid or credited, so the timing of maturity matters.
Joint accounts
Interest on a joint account is usually split equally between the holders. If you are married and own the money unequally, you can elect to be taxed on actual shares using Form 17.
Frequently asked questions
Do I need to tell HMRC about my interest?
If it is above your allowance and HMRC has not already collected it through your tax code, yes.
Is interest on children’s accounts taxed on me?
Only if you gave the money and the interest is over £100 a year.
Is interest from a closed account still reported?
Yes, for the tax year in which it was paid.
Does the PSA count towards my higher rate band?
Yes. Interest covered by the PSA still uses up part of your band.
Related: paying tax on savings interest, tax code changes for savings interest and ISA tax rules.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with savings tax and Self Assessment. See our personal tax accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
