Tax on savings Interest

swimnycheap

Can anyone please clarify the tax on savings. What I read is not clear.

Scenario:

I am retired but not a pensioner. I have no income except from savings interest accounts.

If those savings earn say £10,000 a year in interest

Is my personal allowace used against that? Or is that ignored?

Am I only alble to use the £5000 mentioned in the HMRC low income section about this subject?

Thanks

Flugelhorn

that is considered income - so you have your tax allowance and your starter savings allowance - so you can get something like £17K - (someone will be able to quote the exact figures) before you have to actually pay any income tax

ETA found a bit online :

If you have taxable savings income, there are three main allowances and nil-rate bands which can apply before you would normally owe any tax on that income. These should be considered in the following order:

1. The personal allowance (£12,570 for 2026/27): this is deducted from your taxable income before tax is calculated. If you are eligible for the blind person’s allowance, this is treated in the same way.
2. The starting rate limit for savings (£5,000 for 2026/27): this is a nil-rate band which applies only to savings income. It only applies if your non-savings and non-dividend income is below a certain threshold.
3. The personal savings allowance (also known as PSA) (£1,000 for basic-rate taxpayers): this is a further nil-rate band which applies only to savings income.

The above allowances and nil-rate bands together mean that, for 2026/27, if you have total taxable income of no more than £18,570, then you would generally not owe any tax on your savings income for that year (even if it was more than £1,000).

Dazed_and_C0nfused

But if the op has applied for Marriage Allowance their Personal Allowance will only be £11,310, not £12,570.

And HMRC expect a tax return to be filed if interest is £10k or more in a tax year. Even if no tax is due.

swimnycheap

Folks, thanks for clearing the muddy waters

where_are_we

As you have no earned income you can contribute £2880 net grossed up to £3600 into a personal pension each tax year up to age 75. From age 55 going up to 57 in 2028 you can make withdrawals. If you keep your total taxable income from savings and pension below £18,570 in each tax year you will pay no tax. So if you can manage your pension withdrawals each year when added to your other income to total below £18570 you are gaining £720 from a £2880 outlay. Go to the pension forum for more info. You don`t mention your age but remember when your state pension kicks in you will probably start paying tax and the benefit of contributing £2880 to a personal pension will be greatly reduced to £180 annually.

cc123mm456

Check the MSE article:

https://www.moneysavingexpert.com/savings/tax-free-savings/

clivep

https://forums.moneysavingexpert.com/discussion/comment/81952960#Comment_81952960

Bear in mind that if your state pension and personal pension income exceeds the personal allowance, then the £5,000 band for the 0% starting rate of tax gets reduced accordingly. With a high level of savings interest, the £2,880 contribution can be quite costly…

If all the £2,700 net personal pension income is taxed at 20% then the starting rate band is reduced by £2,700. With a large amount of interest this can lead to an extra £540 tax (even more in the 27-28 tax year) causing a £360 loss rather than a £180 gain.

swimnycheap

Excellent guys

FYI I'm 63