Personal Savings Allowance (PSA):
£1,000
Basic Rate 20%
£500
Higher Rate 40%
£0
Additional Rate 45%
With higher interest rates, many people are earning interest on their savings for the first time in years. This naturally leads to: "Do I need to register for Self Assessment?"
For most people, the answer is no. But it's not always simple. This guide will walk you through your obligations, the tax-free allowances you get first, and the three key scenarios that determine if you need to file a tax return.
First, let's be clear: there is no "hiding" bank interest.
UK banks, building societies, and other financial institutions have a legal duty to send a report to HMRC each year. This report, known as a "Bank and Building Society Interest (BBSI) return," details all the interest paid to UK savers.
This is a legal requirement under Schedule 23 of the Finance Act 2011
What HMRC Does With This Data:
Check Self Assessment returns to ensure interest is declared
Issue PAYE coding notices to collect tax automatically
This means HMRC knows what you've earned, often before you do. They use this data to decide if you owe tax and, if so, how to collect it.
Sources:
• GOV.UK - Bank and building society interest returns
• HMRC Manual SAIM2010 - Interest: introduction
Before you panic, remember that almost every saver gets a tax-free allowance. You only pay tax on interest above this allowance.
Since 2016, banks no longer take tax from your interest automatically. Instead, you get a Personal Savings Allowance (PSA).
The amount of your PSA depends on your Income Tax band:
Basic-rate (20%) taxpayers:
You can earn £1,000 in interest per year, tax-free
Higher-rate (40%) taxpayers:
You can earn £500 in interest per year, tax-free
Additional-rate (45%) taxpayers:
You get a £0 allowance - all interest is taxable
Note: Starting Rate for Savings
If you have very low non-savings income (e.g., under your £12,570 Personal Allowance), you may also be eligible for the Starting Rate for Savings, which can make up to an additional £5,000 of interest tax-free.
For most people, their interest is well within their £1,000 allowance, so they pay no tax and don't need to do anything.
Your action depends on two things: 1) if you already file a tax return, and 2) the amount of interest you earn.
(e.g., for self-employment, rental income, or high income)
This is the most important rule.
You MUST include ALL of your savings interest on your tax return.
It doesn't matter if the interest is £50 and well below your tax-free Personal Savings Allowance. If you are required to submit a Self Assessment for any other reason, you must declare all your untaxed interest on the "Interest and dividends" section (Page TR3 of the main SA100 form).
How It Works:
The tax return will then use your PSA to calculate any tax due, but the income must be reported.
This is the most common situation.
You do NOT need to register for Self Assessment.
If your total savings interest is over your tax-free allowance (e.g., you're a basic-rate taxpayer and earn £1,200 in interest) but less than £10,000, HMRC will handle it.
They will automatically collect the tax you owe (on the £200) by adjusting your PAYE tax code.
How Does This Work?
HMRC uses the data from your bank. They will:
You should see this adjustment on your P2 tax code notice. It's vital to check this notice to ensure the estimated interest amount is correct.
Source: GOV.UK - Tax on savings interest
This is the key threshold.
You MUST register for and file a Self Assessment tax return.
If your total income from savings and investments is over £10,000 for the tax year, you are required to report it through Self Assessment.
This is true even if you don't normally file one and don't have any tax to pay.
Source: GOV.UK - Check if you need to send a Self Assessment tax return
Final Check:
Check Your PSA:
Are you a basic, higher, or additional rate taxpayer? This tells you if your allowance is £1,000, £500, or £0.
Total Your Interest:
Add up all interest from all accounts (including joint accounts, where you're taxed on your 50% share).
Check the £10,000 Rule:
Is your total interest over this limit?
Check Your Tax Code:
Look out for your PAYE code notice (a P2) and check that the "untaxed interest" figure is reasonably accurate. If it's wildly wrong, you should contact HMRC to correct it.
Already file Self Assessment?
→ YES: Include ALL interest on your tax return (even if under PSA)
Interest under £10,000 AND over your PSA?
→ YES: HMRC will adjust your PAYE tax code automatically. Check your P2 notice.
Interest under your PSA?
→ YES: No action needed. No tax to pay.
Interest over £10,000?
→ YES: MUST register for Self Assessment and file a tax return.
Not sure if you need to file? Unsure how to calculate your interest income correctly? We're here to help. Our expert tax team can guide you through your obligations and handle your Self Assessment tax return from start to finish.
Expert tax advice • Self Assessment filing • Peace of mind
| Tax Band | Tax Rate | PSA Amount | Example |
|---|---|---|---|
| Basic Rate | 20% | £1,000 | Earn £1,200 interest? Only pay tax on £200 |
| Higher Rate | 40% | £500 | Earn £700 interest? Only pay tax on £200 |
| Additional Rate | 45% | £0 | All interest is taxable |