What is the starting rate for savings and how does it work?

Full answer

The starting rate for savings is a 0% tax band of up to GBP 5,000 that applies specifically to savings interest. It sits on top of your Personal Allowance (GBP 12,570 for 2026/27) and your Personal Savings Allowance, but it is designed only for people with low non-savings income such as pensioners living mainly off interest or those with small earnings. The catch is the taper. The GBP 5,000 band is reduced by GBP 1 for every GBP 1 of non-savings, non-dividend income (wages, pension, self-employment, rent) that exceeds the GBP 12,570 Personal Allowance. So once your other income reaches GBP 17,570 (GBP 12,570 + GBP 5,000) the starting rate band is fully eroded and gives you nothing. Worked example: suppose your only earnings are a GBP 14,570 pension plus GBP 4,000 of savings interest. Your non-savings income is GBP 2,000 above the Personal Allowance, so the starting rate band shrinks from GBP 5,000 to GBP 3,000. Your GBP 4,000 interest is then covered first by GBP 3,000 of the starting rate at 0%, and the remaining GBP 1,000 by the Personal Savings Allowance (GBP 1,000 for basic-rate taxpayers) -- meaning no tax on the interest at all. Who it affects: low-income savers, especially retirees and people with part-year or part-time earnings. If your salary or pension comfortably exceeds GBP 17,570, this band is irrelevant to you and your interest is sheltered instead by the Personal Savings Allowance (GBP 1,000 basic rate, GBP 500 higher rate, GBP 0 additional rate). The bands stack in a fixed order: Personal Allowance, then starting rate for savings, then Personal Savings Allowance. Use a savings interest tax calculator to see how much of your interest is actually taxable.

Try the calculator