Understanding the UK Savings Tax Rate Changes in 2027

Starting April 6, 2027, the United Kingdom will see changes to how savings interest is taxed. The government announced in the 2026 Autumn Budget that taxable savings income will be subject to new rates. These changes will affect how much tax individuals pay on interest earned from their savings accounts and other non-ISA investments.

The new rates are set at 4% above the ordinary income tax rates. This is an increase from previous years, following a rise announced in the 2025 Budget. While many people will not see a change in their tax bill, some savers will need to be aware of how these new rates might impact their finances.

The government has stated that 84% of income tax payers will be unaffected by these changes. This means that the majority of people will not pay more tax on their savings. However, for those who do see an increase, understanding the new system is important. This article will break down what these changes mean for savers across the UK.

New Savings Tax Rates Explained

The core of the upcoming changes lies in the increased tax rates applied to savings interest. These new rates will be in effect for the 2027/28 tax year. The table below shows how the savings tax rates will change across different income bands.

Income Band (£)	2026/27 Savings Rate (%)	2027/28 Savings Rate (%)
Under 12,571	0	0
12,571 to 50,270	20	24
50,271 to 125,140	40	44
Over 125,140	45	49

As you can see, the tax rate for basic-rate taxpayers (those earning between £12,571 and £50,270) will rise from 20% to 24%. Higher-rate taxpayers (earning between £50,271 and £125,140) will see their savings interest taxed at 44%, up from 40%. Additional-rate taxpayers (earning over £125,140) will face a 49% tax rate, an increase from 45%.

These changes apply to taxable interest earned across the UK. While property income rates will also change, Scotland and Wales have the ability to set their own property tax rates, unlike the savings rates which are set for the entire UK.

Personal Savings Allowance and Starting Rate

The Personal Savings Allowance (PSA) is a key feature that helps many people avoid paying tax on their savings interest. For basic-rate taxpayers, the PSA remains £1,000. For higher-rate taxpayers, it is £500. Additional-rate taxpayers do not have a PSA. These allowance amounts have been frozen since 2016.

Even with the new tax rates, the PSA can still be very effective. For example, a basic-rate taxpayer would need over £25,000 in savings, earning interest at a rate of 4%, to exceed their £1,000 allowance. This is before considering any ISA savings.

Additionally, eligible lower-income savers can still benefit from the 0% starting rate on up to £5,000 of interest. This allowance is available to individuals with total income below £18,570. The amount of this allowance decreases by £1 for every £1 of non-savings income earned above £12,570. This means that some individuals could hold up to £150,000 in savings, in addition to their ISAs, without paying tax on the interest.

It is important to remember that interest earned is considered taxable income. This income can potentially push an individual into a higher tax band, which could reduce or even eliminate their Personal Savings Allowance.

ISA Limits Remain Unchanged

Individual Savings Accounts (ISAs) remain a popular way to save and invest without paying tax on the returns. The annual subscription limit for cash ISAs will stay at £20,000 for all taxpayers. This limit has been a point of discussion, with earlier plans to reduce it to £12,000 for savers under 65 being dropped.

This means a couple can still contribute up to £40,000 between them each year into cash ISAs. The government is also exploring ways to encourage people to invest in stocks and shares ISAs for the first time, working with the investment industry to develop new incentives.

While cash ISAs offer a tax-efficient way to save, the government’s focus on increasing tax on general savings interest suggests a move to encourage more people to utilize their ISA allowances. For those with substantial savings, understanding the limits and benefits of ISAs will be even more important from April 2027.

Impact on Different Taxpayers

The government estimates that the majority of taxpayers, around 88%, will not see any increase in tax on their savings. However, approximately 11% of taxpayers are expected to experience a rise in their tax bill. The top 10% of earners are predicted to pay more than £100 extra per year.

For individuals with large cash deposits, particularly those who are higher or additional-rate taxpayers, holding significant amounts outside of ISAs and pensions may become less attractive. While cash provides essential liquidity, the increased tax on savings interest means that the net return on these funds will be lower. This could lead savers to re-evaluate their financial strategies, potentially shifting more funds into ISAs or other tax-efficient investment vehicles.

Experts suggest that savers should review the balance between cash and investments, make full use of their ISA allowances, and coordinate allowances with their spouses or civil partners. For those with substantial cash savings, exploring options like short-dated gilts might also be considered, though this involves investment risk.

Other Budget Changes

Beyond the changes to savings interest tax, the 2026 Autumn Budget included other adjustments. The trading allowance and the threshold for reporting trading income will both rise to £3,000 for the 2027/28 tax year. This offers a slight increase in the amount of trading income that can be earned without needing to be reported for tax purposes.

A new First Time Buyer ISA is planned to replace the Lifetime ISA in April 2029. This new ISA will offer a 25% bonus on savings up to £20,000, intended for a first home purchase. The Lifetime ISA will remain available until then, with its withdrawal charge being reduced from 25% to 20% for purchases exceeding a certain price limit.

Dividend tax rates, however, remain unchanged. They are set at 10.75% for ordinary rate income, 35.75% for upper rate income, and 39.35% for additional rate income, above the £500 dividend allowance.

The personal allowance, basic-rate limit, and higher-rate threshold remain frozen until April 2031. This freeze, combined with inflation, means that more people may be pulled into higher tax bands over time, even if their income has not significantly increased in real terms.

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