From 6 April 2027 the tax rates on savings interest rise by two percentage points: 20 per cent becomes 22, 40 becomes 42 and 45 becomes 47. The Personal Savings Allowance stays at £1,000 at basic rate and £500 at higher rate, so only interest above that line is hit — but on £100,000 earning 4.00 per cent, a higher-rate saver pays an extra £70 a year and an additional-rate saver £80. You have until 5 April 2027 to act.
This is a rise in the rate, not a cut to your allowances, and that distinction decides who pays. Below: what changes, what it costs at realistic balances, the fixed-rate bond timing trap that can cost far more than the rise itself, and what actually works.
What actually changes on 6 April 2027
At Budget 2025 the government announced higher tax rates on property, savings and dividend income. HMRC’s technical note on the change to tax rates for property, savings and dividend income puts it plainly: “The rates of Income Tax on savings income will be as follows: savings basic rate 22%, savings higher rate 42%, savings additional rate 47%”, applying for the 2027 to 2028 tax year. Property income moves to the same 22, 42 and 47 per cent on the same date.
Dividends went first: since 6 April 2026 the ordinary rate has been 10.75 per cent (up from 8.75) and the upper rate 35.75 per cent (up from 33.75), with the additional rate held at 39.35 per cent.
What is not changing is the tax on your wages. The headline Income Tax rates on earnings and pensions stay at 20, 40 and 45 per cent, with the Personal Allowance at £12,570 and the higher-rate threshold at £50,270. From April 2027 the UK has one set of rates for money you work for and a higher set for money your savings earn.
The same note confirms a second change on the same day: the annual cash ISA limit falls to £12,000 within the unchanged £20,000 overall allowance, with savers over 65 keeping the full £20,000 in cash — a separate rule, worth reading alongside current cash ISA rates.
The allowances survive — as things stand
The single most important line in the technical note for ordinary savers is the confirmation that “the starting rate for savings and personal savings allowance remain unchanged”. So from April 2027 the Personal Savings Allowance is still £1,000 at basic rate, £500 at higher rate and nil at additional rate, and the £5,000 starting rate for savings is still there for people on low non-savings incomes.
Treat that as the position today rather than a promise. The Chancellor has asked the OBR for a forecast to be published on 28 October 2026, accompanied by the Budget, and allowances have been revisited at Budgets before. Nothing here guarantees the £1,000 and £500 survive that day untouched.
What the rise costs at £20,000, £50,000 and £100,000
The arithmetic is simpler than people expect, because all three rates rise by exactly two points. The change costs you £20 a year for every £1,000 of interest above your allowance, whichever band you are in. The rest is just working out how much of your interest sits above that allowance.
The table assumes 4.00 per cent AER throughout. That is our own working assumption, not a rate on offer everywhere: NS&I’s Direct Saver pays 3.75 per cent gross/AER variable, and Bank Rate has been held at 3.75 per cent since 30 July 2026. Each row assumes the interest does not itself push you into a higher band.
| Balance | Your band | Interest at 4.00% | Taxable after allowance | Tax 2026/27 → 2027/28 | Extra a year |
|---|---|---|---|---|---|
| £20,000 | Basic (PSA £1,000) | £800 | £0 | £0 → £0 | £0 |
| £20,000 | Higher (PSA £500) | £800 | £300 | £120 → £126 | £6 |
| £50,000 | Basic (PSA £1,000) | £2,000 | £1,000 | £200 → £220 | £20 |
| £50,000 | Higher (PSA £500) | £2,000 | £1,500 | £600 → £630 | £30 |
| £100,000 | Basic (PSA £1,000) | £4,000 | £3,000 | £600 → £660 | £60 |
| £100,000 | Higher (PSA £500) | £4,000 | £3,500 | £1,400 → £1,470 | £70 |
| £100,000 | Additional (no PSA) | £4,000 | £4,000 | £1,800 → £1,880 | £80 |
The pain is concentrated in large balances held outside a wrapper. On these figures a higher-rate saver with £100,000 sees their after-tax return fall from 2.60 to 2.53 per cent, and a basic-rate saver from 3.40 to 3.34 per cent.
Why the allowance matters more than the rate
A two-point rise on nothing is still nothing. Whether it touches you depends on the Personal Savings Allowance — £1,000 at basic rate, £500 at higher rate, nil at the additional rate. A starting rate for savings of up to £5,000 at 0 per cent also survives, shrinking £1 for every £1 of other income above the Personal Allowance and vanishing at £17,570.
At 4.00 per cent the allowance runs out at £25,000 of savings for a basic-rate taxpayer and £12,500 for a higher-rate taxpayer; at 3.75 per cent, roughly £26,700 and £13,300. Below those balances the 2027 rise costs nothing. Our fuller explainer on the Personal Savings Allowance covers the edge cases.
One structural point catches people out. HMRC confirms that savings and dividend income is treated as the highest part of total income, so interest stacks on top of your wages rather than underneath them: your salary fills the basic-rate band first and the interest lands in whatever is left. Because the allowance is set by the band you end up in, a pay rise that tips you over £50,270 halves it from £1,000 to £500 at the same time.
That is why the freeze matters. The Personal Allowance of £12,570, the basic rate limit of £37,700 and the higher-rate threshold of £50,270 are held there until 5 April 2031, so each year more savers drift into the higher-rate band, lose half their allowance, then meet 42 per cent on the excess.
You rarely have to do anything to pay it. Banks report the interest they pay you to HMRC after the tax year ends; if you are employed or drawing a pension, HMRC adjusts your tax code so the tax comes out automatically. GOV.UK says you must register for Self Assessment if income from savings and investments tops £10,000.
Scotland, Wales and Northern Ireland
Scotland sets its own Income Tax bands, running from a 19 per cent starter rate to a 48 per cent top rate. None of that applies to your savings. GOV.UK is explicit that in Scotland “you’ll pay the same tax as the rest of the UK on dividends and savings interest”, and HMRC’s technical note confirms the savings and dividend changes “will apply UK-wide”. Savers in Glasgow, Cardiff, Belfast and Bristol all move to 22, 42 and 47 per cent on the same day.
Property income is the exception: the government has said it will engage with the devolved governments of Scotland and Wales about letting them set property income rates. One Scottish wrinkle: the Personal Savings Allowance follows the UK bands, so a Scottish taxpayer can pay 42 per cent on earnings above £43,663 and still hold the full £1,000 savings allowance.
The fixed-rate bond maturity trap
This is the part that costs real money, and it has nothing to do with the two-point rise. HMRC’s guidance on when interest arises for tax purposes turns on access, not the calendar: interest “has been made available if it is credited to an account on which the account holder is free to draw”. If a bond’s terms stop you touching the money until maturity, the interest arises at maturity — and the whole lot is taxed in that single tax year.
Take £30,000 in a three-year bond paying 4.00 per cent, held by a basic-rate taxpayer with no other interest. If the account credits £1,200 a year to a separate account you can draw on, £1,000 is covered by the allowance each year and £200 is taxable: at 22 per cent that is £44 a year, or £132 over three years. If instead the interest rolls up and only arrives at maturity, the same £3,600 — three years’ interest, before any compounding — arises in a single tax year, £1,000 is covered and £2,600 is taxable: £572. Same bond, same money, £440 more tax, purely because the allowance is use-it-or-lose-it each year.
It gets worse if the lump pushes you over £50,270 in the maturity year, because the allowance halves to £500 and the excess meets 42 per cent instead of 22. There is also a one-off timing point right now: interest arising by 5 April 2027 is taxed at 20, 40 and 45 per cent, while anything arising from 6 April 2027 meets 22, 42 and 47.
So when shopping for fixed-rate bonds, read the interest-payment terms as carefully as the headline rate. Interest paid away does not compound, so compare AERs — our compound interest calculator shows what the difference is worth over the term.
Not sure how much of your interest is actually taxable?
Work out your likely interest for 2027/28 first, then decide what needs moving — the answer is often less than people fear.
Explore GetSmartSaver →The three responses that genuinely work
Use the ISA allowance before it shrinks
The £20,000 ISA allowance is the cleanest answer. GOV.UK is unambiguous: “you do not pay tax on interest on cash in an ISA”, and you do not declare it on a tax return either.
The timing argument is unusually strong this year, for a reason unconnected to the rate: the 2026/27 allowance still lets you put the full £20,000 into cash, and from 6 April 2027 that limit drops to £12,000 unless you are over 65. Allowances never carry forward.
Move money to the lower-taxed spouse
Between spouses and civil partners living together, cash moves freely: GOV.UK confirms you pay no Capital Gains Tax on assets you give your husband, wife or civil partner. It must be a genuine, outright gift — it becomes their money.
The maths is worth it. A higher-rate taxpayer holding £100,000 at 4.00 per cent pays £1,470 in 2027/28. Split evenly with a basic-rate spouse, the higher-rate partner pays £630 and the basic-rate partner £220 — £850 in total, saving £620 a year. If the spouse has no other income, their £2,000 is covered by the Personal Allowance and the household bill is £630, saving £840.
Joint accounts are less flexible than people assume: HMRC treats income from jointly held assets between married couples as beneficially owned in equal shares under ITA/S836, taxable 50/50 even where ownership is unequal, displaced only by a form 17 declaration. A sole account in the lower-taxed spouse’s name is simpler.
Premium Bonds, with clear eyes
NS&I Premium Bonds pay prizes free of UK Income Tax and Capital Gains Tax, so April 2027 changes nothing for them. The prize fund rate is 4.35 per cent with odds of 21,000 to 1 per £1 Bond number from the September 2026 draw, on a minimum of £25 and a maximum holding of £50,000.
Be honest about what that rate means: it is the rate at which the whole fund is paid across every bond, inflated by a handful of very large prizes. As MoneyHelper puts it, “most people who buy Premium Bonds will earn only a small amount as a percentage of the money they contribute”.
The mistake: paying for tax efficiency with a worse rate
Every April, savers move money into a tax-free wrapper paying a rate so much lower that they end up behind. The break-even is easy to work out, so work it out. From April 2027, £1 of taxable interest is worth 78p to a basic-rate saver, 58p at higher rate and 53p at the additional rate. So a cash ISA beats a taxable account paying 4.00 per cent only above 3.12 per cent (basic), 2.32 per cent (higher) or 2.12 per cent (additional). Today those break-evens are 3.20, 2.40 and 2.20 per cent — the rise moves the line by about eight basis points. A nudge towards ISAs, not a landslide.
And if your interest still sits inside the Personal Savings Allowance, your marginal rate on it is zero, before and after April 2027. In that position an ISA paying even 0.1 points less than the best taxable account is a straight loss: the allowance is already doing the wrapper’s job.
- Check the break-even first — a tax-free 3.00 per cent loses to a taxable 4.00 per cent for a basic-rate saver.
- Do not break a fixed-rate bond early to chase a wrapper; the interest penalty usually dwarfs the tax saved.
- Do not assume the rise touches you: below roughly £25,000 at basic rate, or £12,500 at higher rate, it does not.
What to do before it lands
None of this is urgent in the panic sense, but two of the levers close on 5 April 2027.
- Work out your 2027/28 interest. Add up the balances you will hold outside a wrapper and multiply by the rate you actually get. If the total is under £1,000 (basic) or £500 (higher), stop here.
- Use the £20,000 cash ISA allowance this tax year. From 6 April 2027 the cash limit is £12,000 unless you are over the age of 65, and unused allowances never carry forward.
- Check every maturity date. Interest arising by 5 April 2027 is taxed at 20 or 40 per cent; from 6 April 2027 it is 22 or 42.
- Prefer annual interest on big fixed-rate balances, so each year’s allowance gets used instead of the whole term’s interest landing at once.
- Read your tax code, because HMRC estimates untaxed interest from last year and a one-off maturity distorts the next year’s code.
- Wait for 28 October 2026 before anything drastic. The Budget lands before the change does, and allowances can move.
Frequently asked questions
How much more tax will I pay on savings interest from April 2027?
Two extra pence in the pound on interest above your allowance, so £20 a year for every £1,000 of taxable interest. On £100,000 at 4.00 per cent, a higher-rate saver goes from £1,400 to £1,470 and a basic-rate saver from £600 to £660. Below about £25,000 at basic rate, nothing changes.
Is the Personal Savings Allowance changing in 2027?
Not under the announced change. HMRC’s technical note states that “the starting rate for savings and personal savings allowance remain unchanged”, so the allowance stays at £1,000 for basic-rate and £500 for higher-rate taxpayers, with nil at the additional rate. That is the position as things stand; the Budget on 28 October 2026 could revisit it.
Do the new savings tax rates apply in Scotland?
Yes. HMRC says the changes to savings and dividend rates apply UK-wide, and GOV.UK confirms that in Scotland you pay the same tax as the rest of the UK on dividends and savings interest. Scottish rates of 19 to 48 per cent apply only to earnings, pensions and other non-savings income.
When is interest on a fixed-rate bond taxed?
When it arises, which HMRC ties to access. If interest is credited to an account you are free to draw on, it is taxed that year; if the terms block access until maturity, the whole term’s interest is taxed in the maturity year. On £30,000 at 4.00 per cent over three years, that difference was £440 in our example.
Should I move my savings into a cash ISA before April 2027?
Only if the ISA rate clears the break-even. From April 2027 a cash ISA beats a taxable account paying 4.00 per cent only above 3.12 per cent at basic rate or 2.32 per cent at higher rate. Separately, the cash ISA subscription limit falls from £20,000 to £12,000 on 6 April 2027, except for savers over the age of 65.
Are Premium Bonds still tax-free after April 2027?
Yes. Premium Bonds prizes are free of UK Income Tax and Capital Gains Tax and the 2027 change does not touch them. The prize fund rate is 4.35 per cent from the September 2026 draw, with odds of 21,000 to 1 per £1 Bond number. Most holders earn well under the headline rate.
Last reviewed: August 2026. Figures are for the 2026/27 tax year (6 April 2026 to 5 April 2027) with the announced 2027/28 rates, and are taken from HMRC and GOV.UK publications current at the time of writing. Savings and dividend taxation is UK-wide, so the rates in this article apply equally in England, Scotland, Wales and Northern Ireland, although Scotland sets different rates on earned income and the government has said it will discuss devolved property income rates with Scotland and Wales. Worked examples are our own calculations on stated assumptions. This article is general information, not personal financial advice — check your own position with gov.uk or HMRC, or get free help from MoneyHelper or Citizens Advice, before acting on it.
