Do I pay tax on interest from savings?

By law, banks and building societies are required to deduct income tax at 20% from interest on savings. Most of the time, this is done automatically without us even knowing. However, similar to dividends, there are different rates…

5 Minute Read

Last Updated: 14th March 2022

By law, banks and building societies are required to deduct income tax at 20% from interest on savings. Most of the time, this is done automatically without us even knowing. However, similar to dividends, there are different rates of tax on savings dependant on income. And, if you have a low income, you may even be able to claim tax back!

Tax bands

So, there are 4 different tax bands when it comes to savings, and before we tackle this, you should be aware that savings income is added to your total income after tax-free allowances have been taken into account, such as your personal allowance. So, the tax bands for 2013/2014 are as follows:

Starting rate (10%): taxable savings income that falls below £2,790 is taxed at 10%.

Basic rate (20%): taxable savings income that is above £2,790 (starting rate) and below £32,010 (basic rate) is taxed at 20%.

Higher rate (40%): taxable savings income that is above £32,010 (basic rate) and below £150,000 (additional rate) is taxed at 40%.

Additional rate (45% from 6th April 2013): taxable savings above £150,000 (additional rate) is taxed at 45%.

Getting tax-free interest on savings

If your total taxable income is less than your personal allowance then you may be able to:

  • Register to get savings interest paid tax-free
  • Reclaim tax

To register to get savings tax-free, you will need to fill in an R85 form and send it to your bank/building society as soon as possible.

If you think you have paid too much tax, then you must fill in an R40 tax repayment form, for each year you think you’ve paid too much tax.

When is interest taxable?

Your interest on savings is taxable the year it is paid to you, or credited to your account.

Declaring savings

If you complete a self-assessment, it is essential that you declare:

  • The amount of interest after tax was deducted (net amount),
  • The amount of tax deducted before your received the payment,
  • The sum of the two above (gross amount).

If you need more information regarding your savings, contact your building society/bank as soon as possible to request a ‘certificate of tax deducted.’

View our Guide to Self Assessment Tax Returns

NOTE: This article is now out of date. As from 6 April 2016 new rules came into force, details of these changes can be found here.

Trusted by over 15,000 subscribers

You don't need to be an expert to complete your self assessment tax return.

Start your free trial

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

DOING YOUR TAX RETURN HAS NEVER BEEN SO EASY.

Start your Self Assessment tax return today for free.

Sign up Now

20 common tax and accounting terms that sole traders should understand

06 Jun 2023

Although you’ll no doubt have an expert knowledge of your trade or profession, your understanding of tax and accounting could be fairly limited. That’s…
READ MORE >

Seasonal business owners: 21 things you need to know about sole trader tax

05 Jun 2023

Some business ideas just aren’t viable throughout the year, because the weather at certain months seriously weakens demand or kills it altogether. However, running…
READ MORE >

How much tax does a landlord need to pay? 10 key questions answered…

18 May 2023

The UK has more than 2.7m unincorporated landlords and each year they report to HMRC rental property income worth some £41bn. Unincorporated landlords are…
READ MORE >

How GoSimpleTax Works

01.
Register

Simply register for free with your full name and email address.

02.
Select Your Income

Select the income you receive and follow the hints and tips for potential tax savings.

03.
Validate Your Information

Validate your personal information and submit directly to HMRC to get confirmation in just seconds.

ipad

Work Anywhere, With Any Device

Gone are the days of fretting over a calculator surrounded by scraps of paper at the eleventh hour.

GoSimpleTax’s tax return software uses the information you upload in real time to calculate your income and expenditure, working out the tax you owe and sending you helpful notifications when there’s the possibility of a mistake.

Start your free trial

"The software is intuitive and proved very easy to navigate. I found the whole process refreshingly simple. I saved a lot of money too!"

Steve J.

Ordained Presbyter

"Easy to use and value for money. Everything you need to do your tax."

Gordon J.

Self Employed

"It fills in all the forms and sends them to the Inland Revenue. Not expensive either. Takes the stress out of doing your tax return online."

Ross G.

Team Rector

Start your free trial