Do I have to pay tax on a bank account switching bonus in the UK?

Full answer

When a bank pays you a lump sum (commonly a few hundred pounds) to move your current account to them, HMRC normally treats this switching bonus as a promotional inducement or discount rather than as income or interest. On that basis it is generally not subject to income tax and does not count towards your Personal Savings Allowance. This is different from interest, which is savings income. The distinction matters because anything labelled as interest, or paid as a reward linked to holding a balance, can be taxable savings income. The Personal Savings Allowance lets basic-rate taxpayers earn GBP 1,000 of savings interest tax-free, higher-rate taxpayers GBP 500, and additional-rate taxpayers nothing. A pure one-off switch bonus typically sits outside this regime, but reward or interest payments on the account do not. Who it affects: most people switching accounts pay no tax on the headline cash bonus. You are more likely to be caught if a deal is structured as ongoing interest, a regular reward, or if you are a business or receive the payment in a trade context, where it could be taxable receipts. Worked context: suppose you switch and receive a GBP 175 cash bonus plus the account pays GBP 120 of interest over the year. The GBP 175 bonus is generally not taxable. The GBP 120 interest is savings income; if your total savings interest stays within your Personal Savings Allowance (GBP 1,000 for a basic-rate taxpayer), you still pay no tax, but it counts towards that allowance. Because individual incentive structures vary and HMRC treatment depends on how the bank reports the payment, check the bank's terms and gov.uk guidance on savings and investment income if unsure. Use the savings interest tax calculator to see whether your overall interest exceeds your allowance.

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