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  • The 10% tax rate for savings income

The 10% tax rate for savings income

Interest paid on savings accounts such as bank or building society accounts normally has 20% Income Tax taken off before it's paid. If you're on a very low income you may qualify to pay some tax at 10% and be able to claim a tax refund from HM Revenue & Customs (HMRC).

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How the 10% tax rate for savings is calculated

Most people have income which is made up of a mixture of 'earnings' (things like wages and pensions) and 'savings income' (interest from bank and building society accounts).

Nearly everyone is entitled to a Personal Allowance, which allows you a certain amount of income that does not get taxed. The basic Personal Allowance for 2014 to 2015 tax year is £10,000. If your total taxable income (earnings plus savings income) is more than your Personal Allowance, you'll have to pay tax on the income that is above your Personal Allowance. The amount of your Personal Allowance increases with age - find out more by following the second link below.

Work out if you’re entitled to the 10% starting rate for savings income

The rate of tax will depend on the type of income you receive (earnings or savings) and how much of each type of income you receive.

Most taxable income (up to the basic rate limit of £31,865 - limit for 2014 to 2015 tax year) is taxed at the basic rate of 20%, but there is a special 10% starting rate for savings income (that is bank and building society interest) that you may qualify for. The rate at which your saving income is taxed will depend on the total earnings you receive. If your earnings are less than your Personal Allowance plus £2,880 (the 10% starting rate limit for savings income 2014 to 2015 tax year), then some or all of your savings income will be taxable at 10%.

If you have a mixture of earnings and savings income you have to work out if you are entitled to have any of the savings income taxed at 10%. The examples in the section below 'Worked examples of how the 10% tax rate is calculated' show how this works.

If your only taxable income is savings income, you are entitled to have the first £2,880 of income above your Personal Allowance taxed at 10%. Any savings income above £2,880 will be taxed at the 20% basic rate, the 40% higher rate or the 45% additional rate, depending on your total income.

Banks and building societies will automatically deduct tax at a rate of 20% from the interest you earn. So if you are entitled to have any of your savings income taxed at 10% you will be able to claim some tax back from HMRC, read the section 'How to claim back tax'.

If you need help or you're unsure if the 10% rate will apply to your savings income then contact HMRC.

Contact HMRC

Personal Allowance

Income Tax rates and allowances

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Worked examples of how the 10% tax rate is calculated

The examples in the link below show how the tax rate is worked out for savings interest.

How the 10% tax rate is calculated - worked examples for 2014 to 2015 tax year

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How to claim back tax

If you've paid too much tax on your bank or building society interest, you can claim it back by completing form R40 'Claim for repayment of tax deducted from savings and investments'. You can find a copy by following the link below or you can contact HMRC and ask them to send you a copy. The time limit for making a claim is four years from 5 April end of the tax year. For example, a claim for the tax year 2010 to 2011 must be made by 5 April 2015

If you want to register to get interest on your savings tax-free you need to fill in form R85 'Getting your interest without tax taken off' and send it to your bank or building society.

Getting tax-free interest on savings or claiming tax back

Find form R40 Claim for repayment of tax deducted from savings and investments

Find form R85 Getting your interest without tax taken off

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More useful links

Check if you can get tax-free interest on savings

Which tax rates apply to me - Low Incomes Tax Reform Group (Opens new window)

Tax rates and tax bands - Taxaid (Opens new window)

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