The starting rate for savings lets many UK individuals earn up to £5,000 in savings interest without paying income tax on it. Check if you’re eligible and how the £5,000 is tapered for those earning more than others.
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 because mistakes can result in penalties.
How Does the Starting Rate for Savings Work?
The starting rate for savings entitles UK individuals with taxable income of up to £17,570 to earn up to £5,000 in bank interest tax-free. The allowance is reduced for those earning over the personal allowance.
The personal allowance is £12,570 for the tax year 2023-24**
**the tax year runs from 6 April 2023 to 5 April 2024
How is the Starting Rate for Savings Reduced?
The starting rate for savings is reduced by £1 for every £1 a person earns over the personal allowance. That means by the time they earn £17,570 they are no longer eligible to claim the allowance.
Example
In the tax year 2023-24, you earn £14,000 from your employment and receive £500 of interest on your savings. You have used up your personal allowance through your payslip, so your starting rate for savings is reduced by £1,430 (£14,000 – £12,570).
Your starting rate for savings is £3,570 (£5,000 – £1,430), meaning you do not have to pay income tax on your savings.
SUMMARY OF UK SAVINGS TAX ALLOWANCES
- Taxable income up to £12,570 – entitled to the starting rate for savings of £5,000 tax-free interest income;
- Taxable income from £12,571 to £17,570 – entitled to the starting rate for savings meaning £5,000 tapered for earnings up to £17,570 and £1,000 personal savings allowance;
- Taxable income from £17,571 to £50,270 – entitled to £1,000 personal savings allowance;
- A taxable income from £50,271 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.