Low earners can receive up to £5,000 of savings interest completely tax-free, on top of the usual allowances. Here is how this often-missed band works in 2025/26.
The starter rate for savings is one of the UK tax system's best-kept secrets. It lets people with modest earned income receive up to £5,000 of savings interest without paying a penny of tax, on top of every other allowance. Pensioners and low earners are the big winners, yet many never realise it exists.
UK income is taxed in a set order: earned income first, then savings interest, then dividends. The starter rate for savings is a 0% band that sits just above your Personal Allowance and applies only to savings interest, never to wages or pension income.
The full band is £5,000, but it is tapered. For every £1 of non-savings income you have above the £12,570 Personal Allowance, you lose £1 of the starter rate band. So:
The starter rate does not work alone. After it, the Personal Savings Allowance gives a further 0% slice of interest, £1,000 for basic-rate taxpayers, £500 for higher-rate, and £0 for additional-rate. Combined with the £12,570 Personal Allowance, a low earner can receive a substantial amount tax-free:
| Allowance | Amount (2025/26) | Applies to |
|---|---|---|
| Personal Allowance | £12,570 | All income |
| Starter rate for savings | up to £5,000 | Savings interest |
| Personal Savings Allowance | up to £1,000 | Savings interest |
In the best case, that is £12,570 of earned income plus up to £6,000 of savings interest, all at 0%.
Margaret is retired with a state and small private pension totalling £14,000, plus £4,500 of savings interest from a high-rate account.
Her non-savings income is £14,000, which is £1,430 above the £12,570 Personal Allowance. That £1,430 is taxed at 20% (£286). It also reduces her starter rate band from £5,000 to £3,570.
For her savings interest:
| Step | Amount | Tax |
|---|---|---|
| Interest within starter rate band | £3,570 | £0 (0%) |
| Interest within Personal Savings Allowance | £930 | £0 (0%) |
| Total interest | £4,500 | £0 |
All £4,500 of Margaret's savings interest is tax-free: £3,570 sheltered by the tapered starter rate and the remaining £930 by her £1,000 Personal Savings Allowance. Model your own position with the savings tax calculator.
The starter rate rewards people whose earned income is low but who hold significant savings, classically retirees living mainly on a state pension, part-time workers, carers, and anyone between jobs with a cash buffer earning interest. For someone earning a full-time salary, the band is usually wiped out by the taper before it ever applies, which is why it is overlooked. If your circumstances change, perhaps you reduce your hours or retire, it is worth rechecking whether the starter rate has come back into play.
The starter rate for savings is the system's reward for low earned income paired with healthy savings; if your wages fall, your tax-free interest headroom quietly grows.
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