Date posted: 3rd Jul 2026
Many savers are now finding themselves paying tax on their bank and building society interest, even if they have not made any unusual investments or taken any risks.
Recent reporting suggests the number of people facing tax bills of more than £5,000 on savings interest has nearly tripled in four years, driven by higher interest rates and frozen tax thresholds.
If you have money invested in savings accounts, fixed-rate bonds or other cash deposits, it is worth checking whether your interest income has pushed you over the tax allowances. For many people, this tax is unexpected, but it can often be explained by a combination of rising returns, larger balances and the Personal Savings Allowance being used up elsewhere.
Why this is happening?
The main reason more savers are paying tax is that interest rates have risen, so deposits now generate much more income than they did a few years ago. At the same time, income tax thresholds and savings allowances have remained frozen, which means more people are being pulled into paying tax on interest through fiscal drag.
The Personal Savings Allowance gives basic-rate taxpayers up to £1,000 of tax-free savings interest each year, higher-rate taxpayers up to £500, but additional-rate taxpayers no allowance at all. Once your interest goes above that limit, the excess becomes taxable at your marginal rate.
Who may be affected?
You may be at risk of a savings tax bill if you have:
- A substantial cash balance in savings accounts.
- Fixed-rate bonds or notice accounts paying a higher return.
- Taxable interest alongside wages, pension income or rental income.
- Higher-rate or additional-rate tax status.
- Joint savings, where the interest is split for tax purposes.
Even fairly ordinary savers can be caught out. HMRC data and industry analysis show that millions of people now pay tax on savings interest, and the number continues to rise as more accounts generate interest above the allowance.
Common mistakes
A common issue is assuming that tax has already been deducted at source (as was the case many years ago). In reality, most savings interest is paid gross, and the tax may be collected later through PAYE adjustments or a Self Assessment return. Another frequent mistake is overlooking interest from joint accounts, children’s savings, or accounts opened years ago and forgotten about.
People are also often unaware that using their Personal Allowance on other income can affect the amount of tax-free interest they can receive. If your overall income has increased, or if you have moved into the higher-rate band, your savings tax exposure may be higher than you expect.
Some compensation payments can carry an interest element that is taxable. Interest can be paid alongside PPI redress, mis-sold investment compensation, motor finance commission compensation etc.
In addition, overseas interest can also be taxable in the UK!
What you should do?
The first step is to review the interest earned across all your savings accounts for the tax year. You should also check whether HMRC already has the right information if they are collecting the tax via a PAYE code adjustment, because if they do not, you may receive a balancing bill later or need to file a tax return.
It is also sensible to consider whether some of your cash should be held in an ISA, where interest is tax-free, or whether your savings are structured in a way that makes better use of available allowances. The right approach will depend on your wider income position, tax band and cashflow needs.
That said, interest received from cash held in a stocks and savings ISA will be taxable from April 2027. This is to avoid the circumnavigation of the ISA savings thresholds.
How we can help
If you have received a tax code change, an HMRC letter, or an unexpected bill linked to savings interest, we can help you review the position and deal with it properly. We regularly advise individuals, landlords, company directors and business owners who need clarity on savings tax, income tax bands and HMRC reporting.
We can help you:
- Check whether you owe tax on savings interest.
- Review HMRC coding notices and Self Assessment liabilities.
- Identify whether interest has been taxed correctly.
- Plan ahead to reduce future tax exposure where possible.
Speak to us
If you are worried about tax on your savings, do not wait for an HMRC letter to arrive. Contact our team for practical advice and a clear review of your position.
