Building Society Savings Tax Guide: Personal Savings Allowance

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UK Savings Tax Guide · 2026/27

Building Society Savings Tax Guide: Personal Savings Allowance

Interest from ordinary UK building society savings accounts is normally taxable savings income, but many savers pay no tax because of the Personal Savings Allowance, the starting rate for savings, unused Personal Allowance or tax-free ISA rules.

For the 2026/27 tax year, a basic-rate taxpayer can normally receive up to £1,000 of savings interest within the Personal Savings Allowance, a higher-rate taxpayer up to £500, while an additional-rate taxpayer has no Personal Savings Allowance.

Check Your Personal Savings Allowance See Tax Examples How HMRC Collects the Tax
Do not confuse “paid gross” with “tax-free”. UK banks and building societies normally pay savings interest without deducting Income Tax first. You can still owe tax later if your taxable savings interest exceeds the allowances available to you.

Independent guide reviewed 22 September 2026. Tax depends on your individual income and circumstances. Building-society.org is not HM Revenue & Customs and does not provide personalised tax advice.

Building Society Savings Tax: Quick Answers for 2026/27

Basic-rate taxpayer PSA Up to £1,000 of savings interest at 0% under the Personal Savings Allowance.
Higher-rate taxpayer PSA Up to £500 of savings interest at 0%.
Additional-rate taxpayer PSA £0. The Personal Savings Allowance is not available.
Starting rate for savings Up to £5,000 at 0% where other taxable income is low enough.
Starting-rate cut-off No starting-rate-for-savings band if other taxable income is £17,570 or more under the standard 2026/27 Personal Allowance.
Standard Personal Allowance £12,570 for 2026/27, subject to reduction for higher adjusted net income.
Cash ISA interest Tax-free under ISA rules and does not use your Personal Savings Allowance.
2026/27 ISA allowance £20,000 overall annual ISA subscription allowance.
Simple rule: add together the taxable interest from all your ordinary savings accounts, compare it with any unused Personal Allowance, starting-rate-for-savings band and Personal Savings Allowance available to you, then tax only the amount left over.

Is Building Society Savings Interest Taxable?

Yes, ordinary building society interest is generally savings income for UK Income Tax purposes. HMRC specifically includes interest from bank and building society accounts in taxable savings income.

Some traditional building society accounts use the word “dividend” because savers can be members of the mutual society. HMRC nevertheless treats relevant building society dividends as interest for Income Tax purposes.

Usually taxable savings income

  • Easy-access building society interest.
  • Notice-account interest.
  • Regular saver interest.
  • Fixed-rate bond interest.
  • Interest from ordinary children’s savings where the relevant tax rules apply.
  • Your taxable share of joint-account interest.

Usually outside ordinary taxable savings interest

  • Cash ISA interest.
  • Junior ISA interest.
  • Interest or returns specifically exempted under another statutory savings scheme.
  • Some qualifying National Savings & Investments products.
Building societies generally pay interest gross. They normally do not deduct basic-rate tax before crediting the interest. HMRC works out whether tax is due based on your total savings interest and wider taxable income.

Official HMRC GOV.UK Tax on Savings Interest

After opening this link:

  1. Read which savings interest is taxable.
  2. Note that building society interest is included.
  3. Add interest from all taxable savings accounts rather than checking one account in isolation.
  4. Exclude qualifying ISA interest from the ordinary savings-interest total.
  5. Continue to the “How much is tax free” page to check your allowances.

Personal Savings Allowance 2026/27

The Personal Savings Allowance is a 0% rate on a limited amount of savings income. It is not a separate pot of money and it does not reduce the amount of interest your building society reports to HMRC.

Income Tax position
2026/27 PSA
Current savings tax rate
Practical meaning
Basic rate
£1,000
20%
First £1,000 of eligible savings interest can fall within the PSA.
Higher rate
£500
40%
Only £500 is covered by the PSA.
Additional rate
£0
45%
No Personal Savings Allowance is available.
Your interest can affect your band. HMRC says you work out your Income Tax band by adding savings interest to your other income. Someone close to the higher-rate threshold should not automatically assume they have a £1,000 PSA.

Official allowance Check How Much Savings Interest Is Tax-Free

After opening this link:

  1. Start with your wages, pension and other taxable income.
  2. Add taxable savings interest.
  3. Check whether you remain a basic-rate taxpayer or move into a higher band.
  4. Use the PSA shown for that tax position.
  5. Check the starting-rate-for-savings section as well if your non-savings income is low.

The £5,000 Starting Rate for Savings: Who Can Use It?

The starting rate for savings is separate from the Personal Savings Allowance and mainly helps people with relatively low income from wages, pensions and other non-savings sources.

For 2026/27, you can potentially receive up to £5,000 of savings interest at a 0% starting rate if your other taxable income is low enough.

Other income
Personal Allowance used
Starting-rate band left
Possible PSA on top
£12,570
£12,570
£5,000
Up to £1,000 if still basic rate.
£15,000
£12,570
£2,570
Up to £1,000.
£16,000
£12,570
£1,570
Up to £1,000.
£17,000
£12,570
£570
Up to £1,000.
£17,570+
Fully used
£0
PSA may still apply depending on tax band.
Low-income saver example: with no wages or pension and a standard £12,570 Personal Allowance, a person can potentially combine unused Personal Allowance, up to £5,000 starting-rate savings band and a £1,000 basic-rate PSA. In a straightforward savings-only case this can mean up to £18,570 of interest before Income Tax arises.
The £18,570 figure is not a universal savings allowance. It relies on little or no other taxable income, the standard Personal Allowance being available and the person’s overall tax position remaining within the relevant bands.

Building Society Savings Tax Examples

Example 1: basic-rate taxpayer with £1,500 savings interest

Assume salary and other income leave the saver as a basic-rate taxpayer and no starting-rate-for-savings band is available.

  • Total building society and bank interest: £1,500.
  • Personal Savings Allowance: £1,000.
  • Taxable interest: £500.
  • Current savings basic rate: 20%.
  • Illustrative tax: £100.

Example 2: higher-rate taxpayer with £2,000 savings interest

  • Total taxable savings interest: £2,000.
  • Higher-rate PSA: £500.
  • Taxable interest after PSA: £1,500.
  • Current savings higher rate: 40%.
  • Illustrative tax: £600.

Example 3: £16,000 salary plus £3,000 savings interest

Assuming the standard Personal Allowance, £3,430 of the salary sits above £12,570. That reduces the £5,000 starting-rate band to £1,570.

  • Starting-rate savings band available: £1,570.
  • Personal Savings Allowance: up to £1,000.
  • Total 0%-rate savings capacity in this example: £2,570.
  • Remaining taxable interest: £430.
  • At 20%: approximately £86 tax.

Example 4: additional-rate taxpayer with £2,000 interest

  • Personal Savings Allowance: £0.
  • Taxable savings interest: £2,000.
  • Current savings additional rate: 45%.
  • Illustrative tax: £900.
These examples intentionally simplify the calculation. Adjusted net income, reduced Personal Allowance, Marriage Allowance, Blind Person’s Allowance, foreign income and other taxable income can change the actual result.

How Much Can You Save Before the Personal Savings Allowance Is Used?

The PSA is an allowance for interest, not account balance. The balance that produces £1,000 or £500 of interest changes with the savings rate.

Illustrative AER
£1,000 interest
£500 interest
Why it matters
3%
About £33,333
About £16,667
Lower rates require a larger balance to use the PSA.
4%
£25,000
£12,500
Useful rough threshold for ordinary savings.
5%
£20,000
£10,000
At higher rates, relatively modest balances can use the PSA.
6%
About £16,667
About £8,333
Regular savers can advertise high rates, but monthly funding changes the real interest earned.
These are simple one-year illustrations assuming the full balance earns the quoted rate for a full year. Regular savers, tiered accounts, changing variable rates and deposits made part-way through a tax year will produce different interest.

When Is Interest on a Fixed Rate Bond Taxed?

This is one of the most important building-society tax questions because a three- or five-year bond can credit interest annually while restricting access to the money.

HMRC’s Savings and Investment Manual says interest generally arises when it is received or made available. The exact fixed-bond terms therefore matter.

Interest credited annually and accessible

If you can access the interest, even where doing so triggers a contractual early-access penalty, HMRC’s example treats the interest as arising and taxable when credited each year.

No access to interest until maturity

HMRC’s manual says that if the terms do not allow access until maturity, the interest arises and is taxed at maturity rather than automatically being spread across each year of the bond.

Why maturity timing can matter

Suppose a fixed bond ultimately produces £3,000 of taxable interest. If all £3,000 arises in one tax year at maturity, that single amount is tested against the allowances and tax band applying in that year. You cannot simply divide it into £1,000 per year because the bond lasted three years.

Check both the product terms and the provider’s interest statement. Fixed accounts differ. If you are unsure when interest becomes available under your bond, ask the building society how it reports the interest to HMRC and compare that with HMRC’s “interest arising” guidance.

Official HMRC manual HMRC: When Savings Interest Arises

After opening this link:

  1. Read HMRC’s definition of when interest is received or made available.
  2. Review the fixed-term bond example.
  3. Compare its early-access terms with your own building society bond.
  4. Check whether your interest can actually be drawn before maturity.
  5. Keep annual statements or maturity certificates showing the interest reported.

Tax on Joint Building Society Savings Accounts

GOV.UK says HMRC normally splits joint-account savings interest equally between the account holders. A £2,000 interest payment on a straightforward two-person joint account would therefore normally be treated as £1,000 each.

Each person’s share is tested against their own tax band and allowances. One holder might owe no tax while the other does.

Example: two holders, £3,000 annual interest

If the normal equal split applies, HMRC attributes £1,500 to each saver. If one is a basic-rate taxpayer with a £1,000 PSA, £500 remains taxable for that person. If the other has unused starting-rate-for-savings band, they may owe less or nothing.

HMRC’s detailed guidance allows for cases where beneficial ownership is not genuinely equal. Spouses and civil partners have specific rules, while non-spouses can be taxed according to their actual entitlement where evidence supports a different ownership split.

Official joint-account tax HMRC Joint Savings Interest Guidance

After opening this link:

  1. Check whether the holders are spouses/civil partners or other joint owners.
  2. Read the normal equal-interest treatment.
  3. If the beneficial ownership is genuinely unequal, review HMRC’s rules before changing the split used for tax.
  4. Keep evidence showing the actual ownership arrangement where relevant.

Tax on Children’s Building Society Savings

Children’s savings are not automatically taxed on the parent, but there is an important parental-gift rule.

GOV.UK says that if money given by one parent produces more than £100 of interest in a tax year for their unmarried child under 18, the relevant interest can be treated as the parent’s income under the settlements rules.

£100 or less The parental settlement rule does not normally apply where the relevant income from that parent’s gifts does not exceed £100 in the tax year.
More than £100 All the relevant interest from that parent’s gift can be treated as the parent’s income, not merely the amount above £100.
Grandparents and others The specific £100 parent-gift rule does not apply in the same way to money given by grandparents, other relatives or friends.
Junior ISA Junior ISA interest remains tax-free within the statutory Junior ISA rules.

Official child-savings tax GOV.UK Interest on Savings for Children

After opening this link:

  1. Identify who gave the child the money.
  2. Work out the interest generated by gifts from each parent separately.
  3. Check whether the £100 limit is exceeded.
  4. Do not apply the parent-gift rule to Junior ISA interest.
  5. Contact HMRC if the child or parent has taxable interest that needs reporting.

Ordinary Building Society Savings vs Cash ISA for Tax

The Personal Savings Allowance can make an ordinary savings account effectively tax-free for some people, but a Cash ISA has a different advantage: qualifying ISA interest does not count towards your taxable savings interest at all.

Feature
Ordinary savings
Cash ISA
What to compare
Interest tax
Potentially taxable above allowances.
Tax-free under ISA rules.
Your expected taxable savings interest.
PSA usage
Uses PSA where applicable.
Does not use PSA.
Whether preserving PSA for other interest matters.
2026/27 subscription cap
No ISA subscription limit.
Part of the £20,000 overall ISA allowance.
How much you want to shelter.
Rate
Can sometimes be higher.
May be higher or lower depending on the market.
Compare the net return after tax.
A basic-rate taxpayer who expects only £500 of taxable savings interest may gain no immediate Income Tax saving from choosing a lower-paying Cash ISA instead of a higher-paying ordinary account. But ISA shelter can become more valuable if balances, rates or future tax circumstances rise.

Official ISA rules GOV.UK Individual Savings Accounts

After opening this link:

  1. Confirm the current £20,000 overall ISA allowance for 2026/27.
  2. Check your remaining allowance across all ISAs.
  3. Compare the live Cash ISA rate with the ordinary savings rate.
  4. Estimate the tax you would actually pay on the ordinary account.
  5. Use an official ISA transfer process when moving existing ISA money.

How Does HMRC Know About Building Society Interest?

UK banks and building societies report relevant interest information to HMRC after the tax year. HMRC uses this data to update tax records, calculate tax and check Self Assessment returns.

If interest is £10,000 or less Your provider normally reports it to HMRC. The method of collecting any tax depends on whether you use PAYE, receive a pension or already file Self Assessment.
If employed or receiving a pension HMRC can normally collect tax through your PAYE tax code and may estimate current-year savings interest using previous-year information.
If tax code cannot be adjusted HMRC may send a Simple Assessment showing the amount due and how to pay it.
If you already file Self Assessment Include taxable savings interest on the return rather than assuming the provider’s report removes your reporting responsibility.
If savings interest exceeds £10,000 HMRC says you need to tell them through Self Assessment; a notice to file can be issued if provider data shows interest over £10,000.
If HMRC’s estimate is wrong Check your Personal Tax Account and ask HMRC to update the estimated interest rather than accepting an obviously incorrect tax code.
HMRC may use last year’s interest to estimate this year’s amount. If you moved a large fixed bond, spent your savings or rates changed sharply, the estimate can be very different from what you will actually receive.

Official payment process How HMRC Collects Tax on Savings Interest

After opening this link:

  1. Choose the section matching your situation: PAYE/pension, Self Assessment or no tax code.
  2. Check the £10,000 savings-interest reporting threshold.
  3. Review your Personal Tax Account if HMRC has estimated your interest.
  4. Compare the figure against your actual building society statements.
  5. Contact HMRC if the figure or tax code is wrong.

What Savings Records Should You Keep?

Do not rely only on the balance shown in your app. The important tax figure is the interest arising in the relevant tax year.

Annual interest statements or certificates.
Fixed-bond maturity statements.
Account closure statements.
Interest paid to a nominated external account.
Joint-account interest statements.
ISA statements kept separately from taxable savings.
HMRC tax calculations.
PAYE coding notices using estimated savings interest.
Records from every bank and building society used during the year.
Evidence if an interest figure reported to HMRC is disputed.
HMRC requires UK banks and building societies to make annual interest returns for reportable customers. ISA interest is generally excluded from those ordinary bank-and-building-society interest returns because it is tax-exempt.

Does Savings Interest Tax Work Differently in Scotland or Wales?

Scottish Income Tax has different bands and rates for wages, pensions and most other non-savings income, but GOV.UK confirms that savings interest is taxed using the same UK savings-income rates.

Wales also has Welsh Income Tax rates for relevant non-savings income, while savings interest is taxed under the UK savings rules.

Where you live can still affect the wider calculation because wages or pension income can fall into different regional income-tax bands. That wider income position can affect your overall tax status and which savings allowances are available.

Official Scotland guidance Current Scottish Income Tax Rates

After opening this link:

  1. Confirm whether you are a Scottish taxpayer.
  2. Check the rates applying to wages, pension and other non-savings income.
  3. Note GOV.UK’s statement that savings interest uses the same rates as the rest of the UK.
  4. Use HMRC’s savings-interest guidance for the PSA and starting-rate rules.

Important Savings Tax Changes Due From 6 April 2027

The current 2026/27 rules above remain the relevant rules for this tax year. However, government-published policy sets out significant changes for savings income from 6 April 2027.

Rule
2026/27
From 6 April 2027
What it means
Savings basic rate
20%
22% scheduled
Tax above available allowances increases for basic-rate savings income.
Savings higher rate
40%
42% scheduled
Higher-rate tax on taxable savings interest increases.
Savings additional rate
45%
47% scheduled
Additional-rate savers continue to have no PSA.
Personal Savings Allowance
£1,000 / £500 / £0
Structure due to remain
PSA itself is not scheduled to disappear under the announced reforms.
Cash ISA cash limit
Up to £20,000 within overall ISA allowance
£12,000 for under-65s; £20,000 for 65+
Overall ISA allowance is due to remain £20,000.
Do not apply the 2027 rates to interest arising in 2026/27. The current tax year runs from 6 April 2026 to 5 April 2027. Re-check GOV.UK before the new tax year because implementation details can still be clarified through legislation and HMRC guidance.

Official 2027 changes GOV.UK Savings Income Tax Changes From April 2027

After opening this link:

  1. Find the Savings Income Tax section.
  2. Check the scheduled 22%, 42% and 47% savings rates.
  3. Confirm that the starting-rate and PSA structures are retained under the published policy.
  4. Review the separate Cash ISA changes from April 2027.
  5. Re-check the final rules before making a tax-year-end savings decision.

Should You Move Savings Into a Cash ISA Because of Tax?

Tax should be part of the comparison, but not the only factor. A lower Cash ISA rate can leave you worse off than a higher taxable rate when your ordinary savings interest remains fully covered by your PSA.

An ordinary saver may still work well when

  • Your total interest stays comfortably inside your available allowances.
  • The ordinary account pays materially more than the comparable Cash ISA.
  • You need a feature that is not available on the ISA.
  • You want to keep your ISA allowance for another qualifying asset or account.

A Cash ISA can become more valuable when

  • Your PSA is already fully used.
  • You are an additional-rate taxpayer with no PSA.
  • Your taxable savings balance is large.
  • You expect rates or your taxable income to rise.
  • You want future interest sheltered without using PSA each year.

How to Check Whether You Owe Tax on Building Society Savings

  1. List every taxable savings account. Include building societies, banks and other taxable savings sources rather than looking at only your main provider.
  2. Add the interest arising in the tax year. Use statements and fixed-bond maturity information.
  3. Remove tax-free savings. Do not include qualifying Cash ISA or Junior ISA interest in ordinary taxable savings.
  4. Check unused Personal Allowance. Low-income savers may have part of the £12,570 standard allowance available.
  5. Check the starting rate for savings. This can be worth up to £5,000 where non-savings income is low enough.
  6. Check your Personal Savings Allowance. This is normally £1,000, £500 or £0 depending on tax band.
  7. Tax the remaining interest. Apply the current savings-income tax rate relevant to your position.
  8. Compare with HMRC’s figures. Check your Personal Tax Account, calculation or Self Assessment records.

Official calculator HMRC Savings Interest Tax Checker

After opening this link:

  1. Check the eligibility restrictions for the calculator.
  2. Have your wages or pension figures ready.
  3. Gather taxable savings interest from all providers.
  4. Use the 2026/27 option for the current tax year.
  5. If the tool does not cover your situation, use HMRC guidance or Self Assessment instead.

Common Building Society Savings Tax Mistakes

Thinking gross means tax-free Gross only means the provider did not deduct Income Tax before paying the interest.
Checking only one savings account HMRC adds taxable savings interest across accounts and providers.
Using £1,000 PSA automatically Higher-rate taxpayers normally receive £500 and additional-rate taxpayers £0.
Ignoring the starting rate Low-income savers can have up to another £5,000 taxed at 0%.
Splitting fixed-bond interest manually Tax timing depends on when the interest arises under the product terms, not simply the number of years in the bond.
Including ISA interest in PSA Qualifying ISA interest is already tax-free and does not use your Personal Savings Allowance.
Ignoring HMRC estimates A PAYE code can use previous-year interest even when your current savings balance is very different.
Assuming a child’s account avoids parental tax The £100 parent-gift rule can attribute relevant interest back to the parent.

Related Building-Society.org Savings Guides

Tax is only one part of choosing a savings account. Rates, withdrawal restrictions and ISA rules can change the better practical option.

Nationwide Building Society Savings Rates 2026 Coventry Building Society Savings Rates 2026 Skipton Building Society Savings Rates 2026 Yorkshire Building Society Savings Rates 2026 UK Building Society Directory

Official UK Tax Sources Used for This Guide

GOV.UK Tax on Savings Interest Personal Savings Allowance & Starting Rate How Savings Tax Is Paid 2026/27 Income Tax Rates 2026/27 ISA Rules HMRC Fixed-Bond Interest Timing HMRC Joint Account Interest GOV.UK Children’s Savings Tax Bank & Building Society Interest Reporting HMRC Savings Tax Checker

How This Savings Tax Guide Was Checked

2026/27 £12,570 Personal Allowance checked.
£1,000 basic-rate PSA checked.
£500 higher-rate PSA checked.
£0 additional-rate PSA checked.
£5,000 starting-rate band checked.
£17,570 starting-rate income cut-off checked.
Current 20% / 40% / 45% savings rates checked.
Building society gross-interest treatment checked.
Fixed-bond interest-arising rules reviewed.
Joint-account interest treatment checked.
Children’s £100 parental-gift rule checked.
2026/27 £20,000 ISA allowance checked.
HMRC £10,000 Self Assessment interest threshold checked.
April 2027 announced savings-tax changes checked.

Editorial tax review: 22 September 2026. Tax rules can change at fiscal events or at the start of a new tax year, so check GOV.UK before relying on an allowance for a future year.

Independent Tax Information Notice

Building-society.org is an independent informational website. It is not HM Revenue & Customs, GOV.UK, a building society, tax adviser or accountant.

Your actual liability can depend on your total income, tax residence, reduced Personal Allowance, savings from outside the UK, trusts, joint beneficial ownership and other circumstances that are not covered by a simple Personal Savings Allowance example.

Verify before filing or paying: use your actual provider statements and current HMRC guidance when completing a tax return, checking a PAYE code or deciding whether savings interest has been taxed correctly.

Building Society Savings Tax FAQs

1. How much building society interest is tax-free in 2026/27?

A basic-rate taxpayer can normally receive up to £1,000 of eligible savings interest within the Personal Savings Allowance, a higher-rate taxpayer up to £500 and an additional-rate taxpayer has no PSA. Low-income savers can also qualify for unused Personal Allowance and up to £5,000 under the starting rate for savings.

2. Do building societies deduct tax from savings interest?

Building societies normally pay savings interest gross without deducting Income Tax first. This does not necessarily make the interest tax-free. HMRC works out whether tax is due using your total savings interest, other income and available allowances.

3. What is the Personal Savings Allowance for a higher-rate taxpayer?

For 2026/27 the higher-rate Personal Savings Allowance is £500. Interest above the available allowance can be taxable at the applicable savings-income tax rate.

4. Can I get the £5,000 starting rate for savings as well as the PSA?

Yes, if you qualify. The starting-rate-for-savings band can be used alongside the Personal Savings Allowance. It reduces by £1 for every £1 of relevant other income above the standard Personal Allowance and is unavailable where other taxable income reaches £17,570 or more under the current standard thresholds.

5. When is fixed-rate bond interest taxed?

It depends on when the interest arises under the bond terms. HMRC says interest can be taxable when credited if you are entitled to access it, even if an early-access penalty applies. If the terms provide no access to the interest until maturity, HMRC’s manual says it arises at maturity.

6. Does Cash ISA interest use my Personal Savings Allowance?

No. Qualifying Cash ISA interest is tax-free under ISA rules and does not use the Personal Savings Allowance. The overall ISA subscription allowance for 2026/27 is £20,000.

7. How is interest on a joint building society account taxed?

HMRC normally splits joint-account interest equally between the holders. Each holder then uses their own tax allowances. HMRC’s detailed beneficial-ownership rules can apply where the true entitlement is not equal.

8. How does HMRC know how much building society interest I earned?

UK banks and building societies submit annual information to HMRC about relevant interest paid or credited to reportable customers. HMRC can use that information for PAYE tax codes, tax calculations and checks on Self Assessment returns.

9. Do I need Self Assessment if I have a lot of savings interest?

If you already complete Self Assessment, include your savings interest on the return. GOV.UK says if your savings interest is more than £10,000, you need to tell HMRC through Self Assessment and may receive a notice to file if you are not already registered.

10. Are savings tax rates changing in 2027?

Government-published policy states that from 6 April 2027 the savings basic, higher and additional rates are due to become 22%, 42% and 47% respectively. The Personal Savings Allowance structure is due to remain, while separate Cash ISA contribution changes are also scheduled from that date.

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