You can legally pay no tax on savings interest by keeping it within your allowances and putting the rest in tax-free accounts. For 2026/27 the main tools are the £20,000 ISA allowance, the personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate and £0 for additional rate), and the £5,000 starting rate for savings for people with low other income. For couples, the order and ownership of accounts can make a large difference. Planning matters more than usual this year: savings tax rates rise by 2 percentage points from 6 April 2027, and the cash ISA limit for under-65s falls to £12,000 from the same date under regulations already made.
1. Use the allowances you already have
HMRC applies three layers of tax-free interest before any tax is due:
- Unused personal allowance. If your wages or pension do not use the full £12,570, the balance covers interest;
- Starting rate for savings. Up to £5,000 of interest at 0%, reduced £1 for every £1 of other income above the personal allowance. It is not available once your other taxable income reaches £17,570. The Finance Act 2026 freezes the £5,000 limit until 2030/31;
- Personal savings allowance. £1,000, £500 or nothing, depending on whether any of your income falls in the higher or additional rate band.
To work out your band, interest counts as part of your income. A basic rate taxpayer close to the £50,270 threshold can be pushed into the higher rate band by interest, which halves their savings allowance. Our personal savings allowance guide works through the calculation in detail.
2. Shelter savings in ISAs
Interest on cash in an ISA, and income and gains on investments in one, are tax-free and do not need to go on a tax return. The 2026/27 limits are:
- Adult ISAs. £20,000 in total across cash, stocks and shares, innovative finance and Lifetime ISAs;
- Lifetime ISA. Up to £4,000 of the £20,000, with a 25% government bonus of up to £1,000 a year. A 25% charge applies to most withdrawals before age 60, other than for a first home;
- Junior ISA. £9,000 per child.
ISA money stays tax-free for as long as it remains in the account. The allowance does not, so each £20,000 not used by 5 April is lost. From 6 April 2027, the Individual Savings Account (Amendment) (No. 2) Regulations 2026 (SI 2026/1018), made on 10 September 2026, cap cash ISA subscriptions at £12,000 a year for anyone aged 64 or under at the end of the tax year. The overall limit stays at £20,000, and savers who are 65 or over by 5 April can still put the full £20,000 into cash. The same regulations stop under-65s moving stocks and shares ISA money into a cash ISA, and interest on cash held inside a stocks and shares ISA will be taxed at the savings basic rate, paid by the provider. If you are under 65 and hold large cash balances, 2026/27 is the last year you can put a full £20,000 of cash into an ISA. To move an existing ISA, use a transfer. Withdrawing the money and paying it in again uses up new allowance.
3. Put savings in the right partner's name
Each spouse or civil partner has their own allowances, so the same interest can be taxed very differently depending on who owns the account. An outright gift of savings between spouses or civil partners moves the interest to the recipient for income tax. The gift must carry no conditions and nothing can come back to the giver.
Worked example
Tom earns a £70,000 salary. Sam earns £14,000. They have £60,000 of savings earning, say, 4%, so £2,400 of interest a year.
| In Tom's name | In Sam's name | |
|---|---|---|
| Interest | £2,400 | £2,400 |
| Starting rate available | £0 | £3,570 (£5,000 − £1,430) |
| Personal savings allowance | £500 | £1,000 |
| Taxable interest | £1,900 at 40% | £0 |
| Tax in 2026/27 | £760 | £0 |
On these figures, the same money in Sam's name saves £760 a year. From 2027/28 Tom would pay 42%, so the saving rises to £798. For a joint account, HMRC splits interest equally unless you tell it the beneficial ownership is different. Where one partner's income is below the personal allowance and the other is a basic rate taxpayer, the Marriage Allowance can transfer £1,260 of personal allowance, worth up to £252 a year. Before transferring, check whether the lower earner's unused allowance would do more good covering interest.
4. Control when interest is paid
Interest is taxed on the full amount arising in the tax year (section 370 ITTOIA 2005), and banks report to HMRC the interest they paid you in each tax year. A two-year fixed-rate bond that pays all its interest at maturity puts two years of interest into a single tax year, and that can use up a £500 or £1,000 allowance at once. Where a provider offers a choice, annual or monthly interest spreads the income across years and allowances. Fixed-term bonds maturing after 5 April 2027 will also pay out under the higher 2027/28 rates.
5. Pension contributions can restore the allowance
Relief at source pension contributions, the type most personal pensions use, get basic rate relief added by the provider. For higher and additional rate taxpayers, a claim also extends the basic rate band: section 192 of the Finance Act 2004 increases both the basic and higher rate limits by the amount of the contribution. If the extension brings all your income below the higher rate threshold, none of it is higher-rate income, and your personal savings allowance goes back up from £500 to £1,000. For an additional rate taxpayer, enough contributions can bring back a £500 allowance that was nil. The annual allowance for pension savings is £60,000.
6. Savings for children
Children have their own personal allowance and savings allowances, but there is an anti-avoidance rule. If money a parent gives a child produces more than £100 of interest in a tax year, all of that interest is taxed as the parent's. The £100 limit does not apply to money from grandparents, other relatives or friends, or to money in a Junior ISA or Child Trust Fund. For parents, that makes a Junior ISA the natural home for gifts. See our guide to gifting money to children.
Rates and reporting from April 2027
| Savings rate | 2026/27 | 2027/28 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
Avoiding tax means arranging your savings within the rules, not leaving interest undeclared. Banks report interest to HMRC every year. If you have tax to pay, HMRC usually collects it through your tax code or a Simple Assessment. If your interest is over £10,000, you must report it on a Self Assessment return. If you have overpaid, for example because your income was below your personal allowance, you can claim a refund for up to 4 years.
Sources: HMRC guidance on tax on savings interest, ISAs, the cash ISA limit reduction, the ISA amendment regulations (SI 2026/1018), Marriage Allowance and children's savings; section 5 and section 9 of the Finance Act 2026; section 626 ITTOIA 2005; and section 192 FA 2004. See also our guides to the ISA allowance and pension tax relief.
If you hold significant cash savings and want to arrange them before the April 2027 changes, Acumon's private client tax team can review how your savings, pensions and family allowances fit together as part of wider tax planning.