Got a pension question? Our help is impartial and free to use. Get in touch online or over the phone on 0800 011 3797

How tax on savings and investments works

Depending on how much you earn, you might have to pay tax on savings interest or investment income. This guide takes you through it, plus tax-free ways to save and invest. 

Tax on savings

You won’t be taxed on the cash you have, but you might pay tax on savings interest you get. Here’s a summary of how it works:

  • savings interest is usually paid gross, meaning tax isn’t already taken off
  • most people are allowed to earn a certain amount of tax-free interest every tax year (6 April to 5 April)
  • interest is counted in the tax year you can access it, which might not be the year you earned it 
  • interest in a joint account is usually split equally for tax purposes
  • if you earn more than your allowance, HMRC will usually change your tax code so you’ll pay it automatically – charged at your usual rate of income tax (0%, 20%, 40% or 45%).
What types of savings interest are taxed?

Interest from the following places would usually be taxable:

  • bank, building society and credit union accounts
  • open-ended investment companies (OEICs), investment trusts and unit trusts
  • peer-to-peer lending
  • government or company bonds
  • life annuity payments and some life insurance contracts.

How much you pay depends on your earnings

Your tax-free allowance is based on your total annual income, including any money you earn from employment, pensions, certain benefits, savings and investments and any reliefs or exemptions. 

If you earn up to £17,570

To calculate your allowance:

  1. Take your Personal Allowance, which is usually either: 
    1. £12,570 
    2. £13,383 if claiming Marriage Allowance
    3. £15,440 if claiming the Blind Person’s AllowanceOpens in a new window
  2. Add £6,000.
  3. Minus any non-savings income, such as your wages or pension.

Here are two examples:

  • Someone with a £6,500 salary can earn £12,070 in tax-free interest (£18,570 minus £6,500).
  • Someone with a £14,500 salary can earn £4,070 in tax-free interest (£18,570 minus £14,500).

After that, you’d pay tax at the usual basic rate, currently 20%. 

How it works

Each tax year, you get these tax-free allowances:

  • Your Personal Allowance for all income.
  • Up to £5,000 from your starting rate for savings, so you can earn interest without paying tax. If you earn more than your Personal Allowance in non-savings income, this is reduced by £1 for every £1 earned. 
  • £1,000 for savings interest from the Personal Savings Allowance (PSA).

If you earn £17,571 to £50,270

If you earn more than £17,750 from non-savings income, you can earn £1,000 in savings interest tax-free. 

If all of your income is from savings interest, you can earn up to £13,570 tax-free (£16,440 If you have a higher Personal Allowance).

After that, you’d pay 20% basic rate tax on the rest.

How it works

Each tax year, you get these tax-free allowances:

  1. Your Personal Allowance (PA) for all income, which is usually either:
    1. £12,570
    2. £13,383 if claiming Marriage Allowance
    3. £15,440 if claiming the Blind Person’s AllowanceOpens in a new window
  2. £1,000 for savings interest from the Personal Savings Allowance (PSA).

If you earn £50,271 to £100,000

If you earn more than £50,271 from non-savings income, you can earn £500 in savings interest tax-free. 

If all of your income is from savings interest, you can earn up to £13,070 tax-free (£15,940 If you have a higher Personal Allowance). 

After that, you’d pay 40% higher rate tax on the rest.

How it works

Each tax year, you get these tax-free allowances:

  1. Your Personal Allowance (PA) for all income, which is usually either:
    1. £12,570
    2. £13,383 if claiming Marriage Allowance
    3. £15,440 if claiming the Blind Person’s AllowanceOpens in a new window
  2. £500 for savings interest from the Personal Savings Allowance (PSA).

If you earn £100,000 to £125,140

If you earn more than £100,000 from non-savings income, you can earn £500 in savings interest tax-free.

If all of your income is from savings interest, you can earn up to £13,070 tax-free (up to £15,940 If you have a higher starting Personal Allowance). 

After that, you’d pay 40% higher rate tax on the rest.

How it works

Each tax year, you get these tax-free allowances:

  1. Your Personal Allowance for all income. This reduces by £1 for every £2 you earn over £100,000, usually starting at either:
    1. £12,570
    2. £13,383 if claiming Marriage Allowance
    3. £15,440 if claiming the Blind Person’s Allowance
  2. £500 for savings interest from the Personal Savings Allowance (PSA).

If you earn over £125,140

There’s no tax-free allowance for savings interest, you’ll pay tax on everything earned.

Tax on investments

Most investment income will be taxed at your usual income tax rate, so will count towards your Personal Allowance. But there’s a separate tax-free allowance if you own shares.

For the 2023/24 tax year, you can earn up to £1,000 in dividends – a portion of the company’s profits that’s paid to shareholders periodically during the year – without paying tax on it.

You’ll pay dividend tax over this amount, based on your income tax band:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers.

How to pay tax on savings and investments

How you’re taxed on savings and investments depends on how you usually pay tax:

  • If you’re employed or receiving a pension:
    • HMRC will usually change your tax code to take extra tax from your income. This is usually automatic for savings interest, but you’ll need to tell HMRC if you earn between £1,000 and £10,000 in dividend income. 
    • If you earn more than £10,000 from savings and investments, you’ll need to complete a Self Assessment tax return.
  • If you self-assess, you can report any savings or investment income as part of your usual tax return. 
  • If neither of the above apply, HMRC will contact you if you owe tax on savings interest. You’ll need to tell them about dividend interest.

If you think you've paid too much tax

To claim back overpaid savings tax, you should either:

You’re able to claim for the current and previous four tax years. 

Tax-free savings and investments

Some savings products pay interest that’s tax-free, regardless of how much you earn or other savings interest you are receiving. 

These include: 

  • cash ISAs for savings
  • stocks and shares ISAs for investments
  • saving into a pension. 

Any interest or dividend income earned won’t impact your tax-free allowances, such as the PSA or dividend allowance. Though there are limits to how much you can save each tax year, with the current ISA limit at £20,000. 

Find out more in:

With any type of investment, there’s a risk you could lose your money. Consider getting regulated financial advice to help you choose which type is right for you. See Choosing a financial adviser for help.

Thank you for your feedback.
We’re always trying to improve our website and services, and your feedback helps us understand how we’re doing.
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free, impartial help for all your money and pension choices. Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free, impartial help for all your money and pension choices. Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free, impartial help for all your money and pension choices. Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Talk to us live for…
Talk to us live for…
Talk to us live for pensions guidance using…
Our pensions webchat and telephone helpline will be closed on Tuesday 28 March for staff training. We will re-open on Wednesday 29.
Talk to us live for money guidance using…
Over 50 and want to know your pension options? Our call centre is closed right now, but you can explore your options with our simple online tool Hours
  • Mon – Fri:9am–5pm inc 23, 29 and 30 Dec
  • Sat, Sun and bank holidays:Closed: 24–28 Dec and 31 Dec to 3 Jan 2022

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for money guidance using the telephone
Hours
  • Mon – Fri:8am–6pm inc 23, 29 and 30 Dec
  • Sat, Sun and bank holidays:Closed: 24–28 Dec and 31 Dec to 3 Jan 2022

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for pensions guidance using web chat
Hours
  • Mon-Fri8am-6pm
  • Sat8am - 3pm
  • Sun and bank holidaysClosed
Talk to us live for money guidance using web chat
Hours
  • Mon, Wed, Fri8.20am - 6.20pm
  • Tues, Thurs9am - 6.20pm
  • Sat, Sun and bank holidaysClosed
Talk to us for pensions guidance using our web form

We aim to respond within 5 working days

Talk to us for money guidance using our web form

We aim to respond within 5 working days

Talk to us live for money guidance using WhatsApp

Download app: WhatsApp

For help sorting out your debts, credit questions or pensions guidance. For everything else please contact us via Webchat or Telephone.