The starting rate for savings

The starting rate for savings is a 0% rate of Income Tax that applies to the first £5,000 of savings interest you receive in a tax year¹. It exists for people whose earnings or pension income are modest: if your income from everything other than savings interest is below £17,570, some or all of that £5,000 band is available to you, and interest that falls inside it is taxed at 0%². For many people on low incomes, that means every penny of their savings interest is tax-free.

The rule is written directly into tax law. The Income Tax Act 2007 states plainly:

The £5,000 limit has been in place for several years and is set to stay: the government confirmed in Budget 2025 that the starting rate for savings limit will be retained at £5,000 for the tax years 2026 to 2027 up to and including 2030 to 2031⁴.

What the starting rate for savings is: up to £5,000 of interest at 0%

The starting rate for savings is a band of savings income that is taxed at 0% rather than at your normal Income Tax rate. The band is worth up to £5,000 of interest per tax year¹. Interest is what a savings provider pays you for holding your money: as the Bank of England explains, the interest rate on savings "tells you how much money will be paid into your account, as a percentage of your savings"⁶. So if you have £100 saved at a 3.5% rate, you receive £3.50 in interest over a year⁷.

Without the starting rate, that interest would simply be added to your income and taxed at your usual rate. With it, the first slice of your interest is taxed at nothing. The £5,000 figure is not new: legislation for the 2023-24 tax year set the starting rate limit for savings at £5,000⁸, and the SA110 Self Assessment notes for 2025-26 show the same £5,000 savings starting rate band, with 0% applying within it⁹.

Two things make the starting rate different from other tax allowances. First, it is a rate band rather than an allowance you use up: interest within the £5,000 is taxed at 0%, and interest above it is taxed at your normal rate. Second, it is aimed squarely at people with low non-savings income, which is why the £5,000 shrinks as your earnings or pension rise, as the next sections explain. The full rules on how savings interest is taxed are on the tax on savings interest page.

Who qualifies: other income below £17,570

The starting rate is available only where your non-savings income is low enough. The legislation puts it this way: "Where an individual's non-savings income in a tax year is less than the starting rate limit, their savings income is taxable at the starting rate up to that limit"¹⁰. Non-savings income means everything except your savings interest: wages, pensions, self-employment profits, rental income, dividends and most benefits.

The cut-off is £17,570. As NS&I's guidance puts it, "the starting rate for savings won't be relevant to you if your other income is £17,570 or more"². That number is not arbitrary: it is the Personal Allowance of £12,570 plus the £5,000 starting rate limit. If your other income is exactly £12,570 or below, the full £5,000 band is yours. If your other income is £17,570 or more, none of it is. In between, you get part of it.

The same legislation is equally clear about the other side of the line: "Should an individual's non-savings income in a tax year exceed the starting rate limit for savings, the starting rate is not available"¹⁰. Note that it is your non-savings income that is tested, not your savings interest itself. A person with £10,000 of wages and £8,000 of bank interest can still use the starting rate, because the test looks only at the £10,000.

How your other income reduces the £5,000

The £5,000 band is tapered, not all-or-nothing. The rule is simple: "Every £1 earned over the £12,570 Personal Allowance reduces the £5,000 starting rate by £1 until it's zero"².

Take someone with £15,000 of wages. Their income above the Personal Allowance is £15,000 minus £12,570, which is £2,430. Their starting rate band is therefore £5,000 minus £2,430, which leaves £2,570 of interest taxed at 0%. On top of that, the Personal Savings Allowance (covered below) gives a further slice of tax-free interest, so their total interest that escapes tax can reach £3,570.

The taper means the value of the starting rate falls away gradually as earnings rise. Someone with £13,000 of pension income keeps a £4,570 band; someone with £16,000 keeps £570; someone with £17,000 keeps just £570 less again, at £70. The SA110 notes show this band operating in practice in the Self Assessment calculation, with the £5,000 savings starting rate taxed at 0% and income above it taxed at 20%, 40% or 45% depending on the taxpayer's other income⁹.

How it fits with the Personal Allowance of £12,570

The starting rate sits immediately above the Personal Allowance in the way savings income is taxed. The Personal Allowance is the amount of income most people can receive each year before paying any Income Tax, and it stands at £12,570¹¹. Savings interest first uses up any spare Personal Allowance, then the starting rate band, then the Personal Savings Allowance, and only then is taxed.

The Personal Savings Allowance was introduced in 2016: "In 2016 HMRC introduced a tax-free Personal Savings Allowance of £1,000 on the interest you earn on your savings (or £500 for higher rate taxpayers)"⁵. HMRC's manuals confirm the order of play: "From 2016-17 savings income not within the starting rate for savings may be covered by the personal savings allowance"¹².

For someone with no other income at all, the three layers stack up: £12,570 of Personal Allowance, £5,000 of starting rate and £1,000 of Personal Savings Allowance. HMRC's own statistics describe these as "2 overlapping savings allowances: the Starting Rate for Savings (SRS) and the Personal Savings Allowance (PSA)"¹³, and the two work together rather than competing.

One caution applies at high incomes. The Personal Allowance is reduced by £1 for every £2 of income above £100,000¹, and you do not get a Personal Allowance at all if you earn over £125,140¹⁴. Anyone affected by that taper will normally have non-savings income far above £17,570 anyway, so the starting rate will not apply to them, but the interaction is worth knowing: the £17,570 figure assumes a full Personal Allowance of £12,570. The personal savings allowance page covers the £1,000 and £500 allowances in more detail.

Pensions, a second job and other income that counts

Because the taper is driven by non-savings income, it matters what counts. For Pension Credit purposes, official guidance lists what is included: "Your income includes - State Pension - other pensions - most social security benefits for example Carer's Allowance - earnings from employment and self-employment"¹⁵. The same categories broadly drive the Income Tax calculation: your State Pension, workplace and personal pensions, wages, self-employment profits and most taxable benefits all count as non-savings income for the starting rate test.

The State Pension is the one that catches many people out. It is taxable income, so a State Pension large enough on its own to exceed £12,570 will start eating into the £5,000 band, and any second pension or part-time earnings on top will reduce it further. Pension income has been growing: HMRC's personal incomes statistics record a 17.1% rise in pension income since the tax year ending 2023¹⁶, so more pensioners each year find themselves above the allowance.

A second job does not create a second allowance. As HMRC's guidance explains, "you can only use your Personal Allowance for one job, so it is given to your main one"¹⁷. Income from the second job therefore sits on top of your main earnings when the taper is calculated.

Two groups get a larger effective allowance. Blind Person's Allowance is £3,130 for the 2025 to 2026 tax year¹, up from £3,070¹⁸, and "It means you can earn more before you start paying Income Tax"¹⁹. Because the starting rate taper starts above your allowances, a blind person's larger allowance protects more of the £5,000 band. Similarly, a couple where one partner has spare Personal Allowance may be able to transfer part of it through Marriage Allowance, since the lower earner "must normally have an income below your Personal Allowance - this is usually £12,570"²⁰.

How to get interest paid without tax

Since 2016, banks and building societies pay savings interest without tax taken off, and HMRC settles the tax position afterwards through tax codes or Self Assessment. You pay tax on any interest above your allowances at your usual rate of Income Tax²¹.

If tax has already been collected on interest that should have been covered by the starting rate, there are two routes. The first is to reclaim it from HMRC afterwards. The second is to stop it being taken in the first place: the legislation that created the current system "simplifies processes around the starting rate for savings by enabling eligible savers to register with their bank or building society" to receive interest without tax deducted, rather than having to reclaim it from HMRC¹⁰. Registration suits people who are unlikely to owe Income Tax on their savings income for the year.

For most people, no return is needed. But if your savings interest is more than £10,000, "You need tell HMRC how much interest you earned on a Self Assessment tax return", and if you do not already complete one, you will need to register²¹. People already registered for Self Assessment simply report the interest there²¹. Some pensioners are dealt with through Simple Assessment instead, where HMRC writes to you with a bill¹¹. The step-by-step process is on the reclaiming tax on savings interest page.

From 2027, tax on savings interest rises, but the allowances stay

The starting rate band itself is not changing, but the tax charged on savings interest above your allowances is. The government has announced that it will "increase the savings basic rate to 22%, the savings higher rate to 42% and the savings additional rate to 47% from 6 April 2027"²². The Budget 2025 documents confirm the same figures: the savings basic rate will be increased by 2 percentage points to 22%, and the savings higher rate to 42%⁴.

For comparison, the rates on savings income have been 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers since April 2017²³. The 2027 changes add 2 percentage points to each.

The important point for this page is what is not changing. HMRC's Tax-Free Savings Newsletter of November 2025 states: "The starting rate for savings and the Personal Savings Allowance remain unchanged"²⁴. So the £5,000 band, the taper and the £1,000 and £500 allowances survive the rate rise; what changes is the tax charged on interest that falls outside them.

Scotland: the starting rate is not the Scottish starter rate

The starting rate for savings applies across the UK, including Scotland. HMRC's manuals are explicit that "income tax is charged at the 'starting rate for savings, which is 0% (ITA07/S7)'"¹², and nothing in the Scottish rates changes that for savings income.

Confusion arises because Scotland has its own "starter rate" of Income Tax, which is a different thing entirely. The Scottish starter rate is the first band of Scottish Income Tax on non-savings income: for 2026 to 2027 it taxes income between £12,571 and £16,537 at 19%²⁵, applying to taxpayers who receive the standard UK Personal Allowance of £12,570²⁶.

So a Scottish taxpayer with low earnings can have income taxed at the 19% Scottish starter rate and savings interest taxed at the 0% UK starting rate for savings in the same year. The two bands sound similar, sit at similar income levels, and do entirely different jobs. The tax on savings interest for Scottish taxpayers page covers the interaction in full.

Where the starting rate does not apply

The starting rate is lost in a small number of situations:

• Non-savings income of £17,570 or more. The band is tapered away completely, as set out above².
• Non-savings income above the starting rate limit. The legislation is categorical that where non-savings income exceeds the limit, "the starting rate is not available"¹⁰.
• Interest that is already tax-free. Interest within the Personal Savings Allowance is taxed at the savings nil rate, which is 0% by statute²⁷, so the starting rate has no work to do for that slice.
• No indexation. The £5,000 limit does not rise automatically with inflation: legislation provides that indexation of the starting rate limit for savings "will not apply"¹⁰, and the figure has been fixed by successive Finance Acts, most recently at £5,000 for 2023-24⁸.

It is also worth repeating what the band does not cover: it applies only to savings interest, not to dividends, rental income or other investment returns, and it does not increase the amount of earnings you can receive tax-free. Its whole job is to protect the interest of people whose other income is small.

How the starting rate has changed since 10%

The starting rate for savings has not always been a 0% band. In 2007-08, income tax legislation provided that "the starting rate is 10%"²⁸. For years, the starting rate was a 10% band at the bottom of the savings tax structure.

That changed in 2014/15, when the 10% starting rate applied to interest below a starting rate limit of £2,880²⁹. From 6 April 2015, the rate was cut from 10% to 0% and the limit was extended to £5,000²⁹. At the time, this meant that "anyone with an income not exceeding the personal allowance plus £5,000 (£15,600 in 2015/16) pays no tax on any interest on savings held outside an ISA"²⁹. The Personal Savings Allowance followed in 2016, adding the £1,000 and £500 allowances on top⁵.

Since then the design has been stable. The limit was set at £5,000 for 2023-24⁸, confirmed again in the 2025-26 Self Assessment notes⁹, and Budget 2025 keeps it at £5,000 through to the end of the tax year 2030 to 2031⁴. The Personal Allowance it depends on has been frozen at £12,570¹¹, which is why the £17,570 qualifying threshold has stayed put too.

Where to get help

If you think tax has been taken off your savings interest that should have been covered by the starting rate, the first step is to check your income figures against the £12,570 and £17,570 thresholds on this page, then contact HMRC. HMRC's guidance on paying tax on savings interest explains how interest is collected and how to report it²¹, and Simple Assessment taxpayers receive a calculation from HMRC directly¹¹.

If your circumstances have changed, for example you have retired or taken a second job, your tax code may need correcting, and HMRC's guidance explains how the Personal Allowance is allocated between jobs¹⁷. People who cannot resolve a tax problem with HMRC directly can complain, and free, impartial guidance is available from MoneyHelper. Related guides on this site cover how tax on savings interest works, the personal savings allowance, reclaiming tax and the wider personal tax rules.