Savings interest might seem like a small addition to your income, but in the UK, it can carry tax implications. Whether you earn a modest amount or have substantial funds in multiple accounts, understanding your responsibilities with HMRC is crucial.
The rules can vary depending on how much you earn, where your money is held, and your overall income.
If you are unsure whether you should report your savings interest, the safest approach is to know the thresholds, allowances, and automatic processes HMRC uses. This ensures you avoid unexpected tax bills or penalties.
What Are the HMRC Rules for Paying Tax on Savings Interest?
Savings interest in the UK is subject to specific tax rules set by HMRC. The amount you pay depends on your total income, the type of savings account, and various allowances available to you.
Key allowances include:
- Personal Allowance: The amount you can earn before paying income tax, which can also cover savings interest if unused.
- Starting Rate for Savings: Up to £5,000 of tax-free interest if your other income is below £17,570.
- Personal Savings Allowance: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and none for additional rate taxpayers.
You’ll pay tax at your normal income tax rate on interest above these allowances. Interest from ISAs is always tax-free and does not count towards your allowance.
These rules apply to various types of savings including bank accounts, credit union accounts, bonds, and some insurance-based savings.
Do You Have to Notify HMRC of Savings Interest?
For most savers, there is no need to notify HMRC directly because banks and other financial institutions send annual interest reports automatically. HMRC uses these to calculate whether tax is due and may adjust your tax code accordingly.
However, you must notify HMRC yourself if:
- Your savings interest pushes your income above your available allowances.
- You receive taxable foreign interest.
- You earn more than £10,000 a year from savings and investments combined.
If you already file a Self-Assessment tax return for other reasons, your savings interest should be included there.
Not informing HMRC when you are required to can result in penalties, especially if it appears to be a deliberate omission. Keeping accurate annual totals is key to avoiding problems.
When Should You Report Savings Interest to HMRC?
You should report savings interest when it goes beyond your allowances or in circumstances where HMRC might not have accurate information.
This is especially important if you hold multiple savings accounts across different institutions. Even though banks send reports, errors or omissions can occur.
You should also report your interest through Self-Assessment if you are self-employed, have substantial investment income, or your total savings income is more than £10,000.
If you are employed or receive a pension, HMRC might adjust your tax code automatically, but you must still confirm details if you notice discrepancies. Proactive reporting helps avoid late payment penalties.
How Does HMRC Know About My Savings Interest?
HMRC obtains savings interest data from UK banks, building societies, and certain other financial organisations. These institutions send an annual statement after the tax year ends, detailing how much interest you have earned. HMRC then uses this information to determine whether you owe tax.
Their process includes:
- Comparing the reported interest with your allowances.
- Adjusting your PAYE tax code if tax is due.
- Issuing a tax calculation letter between June and March of the following year if you owe money or are due a refund.
If the interest amount changes significantly from year to year, HMRC may estimate based on past figures and adjust later. While this is often accurate, checking the details ensures you do not pay too much or too little.
Do Banks Automatically Inform HMRC About Interest?
Yes. UK banks and building societies automatically send interest information to HMRC, including accounts that have earned very small amounts.
This process ensures that HMRC can match your interest income with your tax record. For many people, this means no further action is needed, as any tax owed is collected via an adjusted tax code.
However, if you earn from multiple sources or from overseas accounts, you may need to supply additional details to HMRC to ensure everything is correct.
How Much Savings Interest Is Tax-Free in the UK?
The amount of savings interest you can earn tax-free depends on your income level and the allowances you qualify for.
| Income Tax Band | Personal Savings Allowance | Starting Rate for Savings | Total Potential Tax-Free Interest |
| Basic Rate | £1,000 | Up to £5,000 | Up to £6,000 |
| Higher Rate | £500 | None | £500 |
| Additional Rate | £0 | None | £0 |
For example, a basic rate taxpayer earning only £15,000 from wages could qualify for both the £1,000 Personal Savings Allowance and part or all of the £5,000 starting rate, potentially making up to £6,000 of interest tax-free. Remember, ISA interest is always outside these calculations.
What Is the Process for Declaring Interest on Your Savings Account?
If you earn interest on your savings that goes over your tax-free allowance, you may need to inform HMRC so the correct amount of tax is paid.
The method you use to declare this interest depends on whether you already complete a Self-Assessment tax return or rely on HMRC’s automatic tax code adjustments.
- If you already complete a Self-Assessment: Add your total interest in the relevant section of the return.
- If you do not normally complete one: HMRC may adjust your tax code automatically using bank-provided information.
- If figures appear incorrect: Contact HMRC to update your records.
Always keep documentation from your bank showing the exact interest amounts. This can be useful if HMRC’s records differ from yours.
Process If You Go Over Your Savings Allowance
When your total savings interest surpasses your tax-free threshold:
- Work out your total interest from all accounts.
- Subtract your allowances to find the taxable portion.
- Multiply by your income tax rate to find the amount due.
If employed or retired, HMRC may collect this through PAYE by adjusting your tax code. If self-employed or with other untaxed income, you must declare it in your Self-Assessment and pay the due amount by the January deadline.
How Are Joint Accounts and ISAs Treated for Savings Tax Purposes?
For joint accounts, interest is generally split 50/50 between account holders, regardless of who actually deposited the money.
However, if the ownership or contribution is not equal, you can notify HMRC and provide clear evidence, such as bank statements or agreements, to apply a different split.
| Account Type | Tax Treatment |
| Joint Accounts | Interest split equally unless proven otherwise |
| ISAs | 100% tax-free interest |
ISAs are entirely exempt from tax, and interest earned on them does not count towards your Personal Savings Allowance. This makes them one of the most effective ways to protect savings from taxation and maximise returns.
How Can You Claim a Refund for Overpaid Tax on Savings Interest?
If HMRC has taken more tax from your savings interest than required, you have the right to claim a refund. This ensures you recover any overpaid amounts and keep your finances accurate.
The process differs depending on whether or not you complete a Self-Assessment tax return. Here are the ways to claim a refund:
- For Self-Assessment filers: Submit the correct interest figures directly on your annual tax return, ensuring all information matches your bank statements.
- For non-filers: Complete an R40 form online or by post to request repayment, making sure you provide all supporting details.
You must make your claim within four years of the end of the relevant tax year. Missing this deadline means HMRC will not issue a refund, regardless of the amount owed.
Keeping organised records, including annual bank interest summaries, helps avoid errors and ensures your claim is processed quickly and without dispute.
What Happens If You Don’t Notify HMRC About Savings Interest?
Failing to notify HMRC about taxable savings interest can have serious consequences. If your interest exceeds the available allowances and you don’t report it, HMRC may take action to recover the unpaid tax. This can affect both your finances and your future tax codes.
Possible Consequences of Not Reporting
- Penalties for non-disclosure: These can be significant and increase the longer you delay informing HMRC.
- Interest charges on overdue tax: Additional costs will apply until the full amount is paid.
- Tax code adjustments: HMRC may change your future tax codes to recover debts directly from your income.
If you discover that you have not reported your savings interest, it is best to act quickly. Contacting HMRC and making a voluntary disclosure often results in lower penalties and helps prevent further enforcement action.
Conclusion
Knowing whether you must notify HMRC about savings interest is key to staying compliant and avoiding costly mistakes. By understanding your allowances, knowing how HMRC receives information, and acting promptly when necessary, you can ensure your finances remain in good order.
Review your accounts annually, compare your figures to HMRC’s, and use tax-free accounts like ISAs to reduce your liability where possible.
Frequently Asked Questions
Can HMRC backdate tax demands on savings interest?
Yes, HMRC can review previous years and request tax payment if they discover undeclared interest.
Does foreign savings interest count towards your UK allowance?
Yes, foreign savings interest is taxable in the UK and counts towards your allowances.
What is the deadline for claiming a tax refund on savings interest?
You have four years from the end of the relevant tax year to claim a refund.
Does HMRC estimate future interest based on previous years?
Yes, HMRC uses past figures to estimate current-year interest for tax code adjustments.
How does PPI compensation affect savings tax?
PPI compensation may include interest, which can be taxable and count towards your allowance.
Are children’s savings accounts taxed the same way?
Yes, but special rules apply if the interest comes from money given by parents.
Can you split joint account interest unequally for tax purposes?
Yes, if you can provide proof of different ownership shares to HMRC.
