On top of your Personal Savings Allowance, up to £5,000 of savings interest can be taxed at 0%, but only if your other income is low enough. Here is exactly how the taper works for 2025/26.
Most people know about the Personal Savings Allowance, the £1,000 of tax-free interest that basic-rate taxpayers enjoy. Far fewer know that beneath it sits an even more generous, but much more conditional, relief: the starting rate for savings, a band of up to £5,000 of savings interest taxed at 0%. For the right person, usually someone with modest earned income, it can mean thousands of pounds of interest received completely tax-free.
The catch, and the reason it is so widely misunderstood, is the taper. The £5,000 band only survives in full if your non-savings income is at or below the personal allowance. The more you earn from work, self-employment or a pension, the smaller the band becomes, until it vanishes entirely. This page explains exactly how the mechanics work for the 2025/26 tax year.
For 2025/26 the starting rate for savings band is £5,000, and the rate applied within it is 0%. The personal allowance, which is central to the taper, is £12,570. Both figures are frozen at the levels they have held for several years.
To picture how the band fits into the income tax stack, savings interest is taxed last, after your earned income and dividends. The order in which HMRC stacks your income is:
Your personal allowance is set against the first slice, and the starting rate band then applies to savings interest sitting just above the personal allowance.
The rule is simple to state: take the £5,000 band, then reduce it by every pound of non-savings income above the £12,570 personal allowance.
| Non-savings income | Amount above £12,570 | Starting rate band left |
|---|---|---|
| £12,570 or less | £0 | £5,000 (full) |
| £13,570 | £1,000 | £4,000 |
| £15,570 | £3,000 | £2,000 |
| £17,570 | £5,000 | £0 (gone) |
Once your non-savings income reaches £17,570, the band is completely tapered away and you rely on the Personal Savings Allowance alone for tax-free interest. Crucially, dividends do not reduce the band, only non-savings, non-dividend income does.
The starting rate is the tax system's quiet gift to people who live mainly on their savings. A retiree drawing a modest state pension of around £12,000 a year, with the rest of their income coming from a large cash deposit, can receive £5,000 of interest at 0%, plus their £1,000 Personal Savings Allowance, plus any unused personal allowance set against the interest. For such a person, tens of thousands of pounds of capital can generate tax-free income.
There is no formal qualification test beyond the income arithmetic. Anyone who is a UK taxpayer with savings interest can use whatever portion of the £5,000 band the taper leaves intact. In practice the people who benefit are:
If your non-savings income exceeds £17,570, the band is gone, and you fall back on the Personal Savings Allowance of £1,000, £500 or £0 depending on your tax band.
Margaret is 68. Her income for 2025/26 is a state pension and small private pension totalling £14,000, plus £6,000 of interest from a building society account.
Step 1: Her personal allowance of £12,570 covers the first slice of her £14,000 pension, leaving £1,430 of pension taxable at 20%.
Step 2: Her non-savings income is £14,000, which is £1,430 above the personal allowance. So her starting rate band reduces from £5,000 to £3,570 (£5,000 minus £1,430).
Step 3: The first £3,570 of her £6,000 interest is taxed at 0% under the starting rate band.
Step 4: Her Personal Savings Allowance of £1,000 covers the next £1,000 of interest at 0%.
Step 5: That leaves £6,000 minus £3,570 minus £1,000 = £1,430 of interest taxable at the 20% basic rate, a tax bill of £286 on her interest.
Without the starting rate band, far more of Margaret's interest would have been taxable. The band saved her 20% on £3,570, or £714.
The starting rate for savings sits in a carefully sequenced relationship with two other reliefs. First, your personal allowance is set against non-savings income before the band is calculated, which is why the taper measures income above £12,570 rather than from zero. If you have spare personal allowance because your earned income is below £12,570, that unused allowance can also shelter savings interest before the starting rate band even comes into play, effectively giving you more than £5,000 of tax-free interest.
Second, the Personal Savings Allowance sits on top of the starting rate band. You apply the starting rate band first, then the PSA, then any remaining interest is taxed at your marginal rate. Because the two stack, a low-income saver can shelter £5,000 (starting rate) plus £1,000 (PSA) of interest at 0%, on top of any unused personal allowance. The savings tax calculator lets you model exactly where the bands fall for your own income mix.
ISA interest is irrelevant to all of this, because interest earned inside an ISA is already tax-free and never enters the calculation. That is why savers with significant cash often fill their ISA allowance first, then rely on the starting rate band and PSA for interest on the remainder.
Couples often hold savings in joint accounts, and the starting rate creates a genuine planning opportunity. Interest on a joint account is normally split 50/50 between the account holders for tax purposes, so each partner uses their own personal allowance, starting rate band and Personal Savings Allowance against their half.
Where one partner has low earned income and the other is a higher earner, it can be worth holding more of the household's savings in the lower earner's name, or weighting a joint account accordingly. The lower earner may have a full or partial £5,000 starting rate band going spare, while the higher earner may have already used their reduced £500 Personal Savings Allowance and be paying 40% on any further interest. Moving interest from the higher earner to the lower earner can shift it from a 40% charge to a 0% charge under the starting rate band.
This is entirely legitimate tax planning between spouses or civil partners, who can transfer assets between themselves without triggering capital gains tax. It is not available in the same way to unmarried couples, who are taxed as separate individuals on whatever they each genuinely own. The key is that the income must follow real ownership; simply nominating who pays the tax without changing who owns the money is not effective.
Consider a couple where one partner earns £55,000 (a higher-rate taxpayer with a £500 Personal Savings Allowance and no starting rate band) and the other has stepped back from work with just £8,000 of pension income. The lower earner has both unused personal allowance and a full £5,000 starting rate band available. Routing the family's interest-bearing savings towards the lower earner could shelter several thousand pounds of interest at 0% that would otherwise be taxed at 40% in the higher earner's hands, a saving worth hundreds or even thousands of pounds a year.
Income tax on savings and dividends is reserved to the UK government, not devolved. So while a Scottish taxpayer pays Scottish rates on their earned income (with S-prefix codes such as S1257L) and a Welsh taxpayer uses C-prefix codes, both use the standard UK-wide £5,000 starting rate band and the standard £12,570 personal allowance when working out their tax-free interest. The devolved rates affect how much tax they pay on wages, not how the savings band tapers.
The starting rate for savings is the tax break almost nobody talks about, yet for a retiree living on interest it can be worth more than the Personal Savings Allowance and the personal allowance combined.
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