Filling in your tax return and wondering whether you need to declare bank interest? Well, you’re not alone because forgetting to include bank interest is a common mistake people make when it comes to self-assessment. Find out in this guide how to show it and the tax-free allowances available so you can pay less tax on taxable interest income.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional.
Updated 17 September 2021
Table of contents
1. How to Declare Interest On Your Tax Return
You need to declare bank interest you’ve received on all your bank accounts in the main section of your tax return (SA100), which you’ll find when you signed into your .GOV account with your HMRC user ID, (not a supplementary section like the SA200 self-employment section). You’ll need to show it in the income section, separating the interest you’ve received between the ones which have been taxed and those that haven’t. You can check your interest certificates to check whether tax has been deducted, or, look for details on your bank statements for the tax year.
2. Which Bank Interest is Taxable?
- bank and building society accounts (including business accounts and your portion of joint bank accounts)
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
- trust funds
- payment protection insurance (PPI)
- government or company bonds
- life annuity payments
- some life insurance contracts
3. How Much Tax Do You Pay On Savings Interest?
You’ll pay income tax on taxable savings interest received, but the amount you will pay will depend on your total income for the tax year but also after deducting income tax allowances available to use against interest:
4. How to Claim The Savings Interest Allowances
The way you claim your allowances depends on whether you have taxable income of more than £17,500 and the rate of tax you pay. HMRC will automatically work out your allowance entitlement and any tax you have to pay based on the information you enter into your tax return. In summary, here’s how the allowances work:
- Taxable income up to £12,500 – entitled to the starting rate for savings meaning £5,000 of tax-free interest income;
- Taxable income from £12,501 to £17,500 – entitled to the starting rate for savings meaning £5,000 tax-free amount is tapered for earnings up to £17,500 and £1,000 personal savings allowance;
- Taxable income from £17,501 to £50,000 – entitled to £1,000 personal savings allowance;
- Taxable income from £50,001 to £150,000 – entitled to £500 personal savings allowance;
- Taxable income over £150,000 – no entitlement to the starting rate for savings or personal savings allowance.
You can find out more about how to work out how these allowances work in this guide personal savings allowance explained‘
Taxes are changing! From April 2024 sole traders will need to report their earnings and pay tax on a quarterly basis. This is known as Making Tax Digital, which you can read more about in this guide to help you get prepared.