Tax on bank and building society accounts

Savings interest normally has tax taken off at 20% before you receive it. If you're a higher rate (40%) or additional rate (45%) taxpayer, you'll owe tax on the difference. If you have a low income you may be able to claim tax back.

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How you pay tax on savings income

Savings income is added to your other income and taxed after your tax-free allowances - for example Personal Allowance - have been taken into account, as follows:

  • taxable savings income that falls within the £2,880 starting rate for savings Income Tax band is taxed at 10% - but only if the rate band has not been used up by other income as savings income is taxed last
  • taxable savings income (included with any other income) that rises above the £2,880 starting rate for savings Income Tax band, but falls within the £31,865 basic rate band, is taxed at 20%
  • taxable savings income (included with any other income) that rises above the £31,865 Income Tax band, but falls within the £150,000 higher rate band, is taxed at 40%
  • taxable savings income (included with any other income) that rises above the £150,000 Income Tax band is taxed at 45%
  • if it falls on both sides of a tax band, the relevant amounts are taxed at the rates for each tax band

All of the above figures apply to the 2014 to 2015 tax year.

You pay tax on your interest in the tax year that the interest is paid to you (or credited to your account) even if you've earned part of it in previous tax years.

Check Income Tax rates and allowances

Income Tax - the basics

Find out more about the 10% rate for savings and view examples

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Tax deducted from interest before you receive it

Savings income normally has 20% tax taken off before you receive it. This is confirmed by the entry 'net interest' on your bank or building society statement.

If the entry shows only 'gross interest' - and no net interest - then no tax has been deducted. You normally have to register to receive interest gross - for more on this see 'If you're a non-taxpayer' in the section below.

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Reclaiming or paying extra tax on savings interest

If you're a non-taxpayer

If your level of income means that you don't need to pay tax, you can complete a form R85 Getting your interest without tax taken off. If you've already had tax taken off your interest, you will be able to claim it back.

How to claim tax back

If the starting rate for savings (10%) applies to you

The rate of Income Tax you pay on savings is worked out after any non-savings income has been taken into account. So if your non-savings income is less than the starting rate for savings limit (£2,880) - or if savings and investments are your only source of income - your savings income is taxable at the 10% starting rate up to the limit.

However, your interest will have been taxed at 20% so you will be able to claim part of the tax back.

How to claim tax back

If you're a basic rate taxpayer

If you're a basic rate (20%) taxpayer you don't need to take any action. No extra tax is due.

If you're a higher rate taxpayer

If you're a higher rate (40%) taxpayer you must let HM Revenue & Customs (HMRC) know what interest you have received so that they can collect the extra tax due:

  • if you normally complete a Self Assessment tax return you'll need to declare your savings income on your return
  • if you completed a tax return during the 2013 to 2014 tax year, but now pay your higher rate tax through PAYE (Pay As You Earn), the extra tax due on your savings will also be collected through PAYE based on the latest information HMRC has
  • if you no longer complete tax returns you can ask HMRC to send you a P810 Tax Review form so they can check on your level of savings and other untaxed income, and then adjust your tax code (or ask you to complete a tax return if necessary)
  • if you don't normally complete a tax return but have recently moved into the higher rate Income Tax band, you must let HMRC know what savings income you receive by completing a P810 Tax Review form, available on request from HMRC. HMRC will either ask you to complete a return, or, if you're employed or receiving a pension, may arrange to collect the extra tax due through PAYE

If you're an additional rate taxpayer

If you're an additional rate (45%) taxpayer you'll need to declare your savings on your tax return so that you pay the extra tax due.

Do you need to complete a tax return?

Find out more about savings income taxed through your tax code

Contact HMRC

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If your savings or other income changes significantly

Whatever your current Income Tax band, if you don't normally complete a tax return and there is a significant change to your savings or other income, you must contact HMRC right away so that they can work out whether you need to pay extra or less tax. By contacting them early on you can:

  • prevent a build up of tax owed if your income takes you into a higher band
  • avoid paying too much tax if your income has fallen below certain limits

Changes to your income - how and when to report these to HMRC

Contact HMRC

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Declaring savings interest on your tax return

If you complete a tax return you'll need to show (for your combined bank/building society savings) the:

  • amount of interest you received after tax was deducted - the 'net amount'
  • amount of tax deducted 'at source' - before you received the payment
  • sum of the two above - the 'gross amount' (before tax)

There are three separate boxes for this information.

There's also a separate box to complete for any interest you received without tax deducted.

Your bank/building society may send you a 'Certificate of Tax Deducted' or a statement containing this information after the end of each tax year (5 April). If you need one but haven't received one, just ask. You can also often get the figures you need from your passbook or from your statements of account.

If you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income.

Completing a tax return

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Tax-free savings interest from ISAs (Individual Savings Account)

Interest from cash ISAs is tax-free. As a result no tax is deducted at source.

Find out more about ISAs

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More useful links

How to file your tax return online

Income Tax rates and thresholds

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