Starting Rate for Savings

The starting rate for savings allows certain UK taxpayers to earn £5,000 of savings interest without paying tax.

It was put in place in April 2016 to support low income families to pay less tax on interest they earn from their savings.

What is The Starting Rate for Savings?

UK taxpayers with a taxable income of £17,500 or less may be eligible to claim the starting rate for savings of up to £5,000.  

What Can You Claim?

The starting rate is reduced by £1 for every £1 you earn over the personal allowance which is £12,500 for 2020/2021.

That means by the time you earn £17,500 you are no longer eligible to claim it.


In the tax year 2020/2021, you earn £16,000 from your employment and get £400 of interest on your savings.

You have used up your personal allowance on your employment income so your starting rate for savings is reduced by £3,500 (£16,000 – £12,500).

Your starting rate for savings is £1,500 (£5,000 – £3,500), meaning you do not have to pay tax on your savings.

What Happens Once You Receive More Interest than the Starting Rate?

The personal savings allowances lets UK individuals earn a certain amount of interest on their savings tax-free every tax year, depending on the rate of tax they pay.

The current allowance is:

  • Basic Rate Taxpayers (20%) £1,000
  • Higher Rate Taxpayers (40%) £500
  • Additional Rate Taxpayers (45%) £0

In the example above, if you received £2,000 in interest instead you’ll have earned more than the starting rate allowance of £1,500.

In this case the first £1,500 of interest will be covered by the starting rate and the remaining £500 will be covered by the personal savings allowance of £1,000 for basic rate taxpayers.

What Happens Once You Taxable Income Becomes More than £17,500?

When your taxable income is more than £17,500 you cannot claim the start rate. Instead, you’ll only be eligible for the personal savings allowance.

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Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.