Savings Tax Rising to 24%, 44% and 49% in 2027: Five Ways to Protect Your Interest

Tax Planning

4 November 2026 — David Gregory, DipPFS

The Budget scrapped the £12,000 cash ISA cap, but tax on savings interest outside an ISA rises by two percentage points from April 2027. Here's who pays more and what you can do before then.

The short answer

From 6 April 2027, interest on savings held outside an ISA or pension will be taxed at 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers. That's two percentage points more than the rates the 2025 Budget had already set for 2027, and four points above today's 20%, 40% and 45%.

The Personal Savings Allowance stays at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers still get no allowance. The £5,000 starting rate for savings is also unchanged.

The same Budget, delivered on 28 October 2026, scrapped the planned £12,000 cap on cash ISAs. You can still put the full £20,000 ISA allowance into cash, whatever your age. With that in mind, the simplest protection for most savers is making use of available ISA allowances where appropriate.

The new savings rates have been announced and are due to be legislated in the Finance Bill 2026 to 2027, so they remain subject to legislation.

What is changing and when

These rates apply across the UK, including Scotland. Savings income isn't devolved, so Scottish taxpayers pay the UK savings rates on their interest.

The Chancellor said most people won't pay more, because their interest stays within their allowances. The people affected are those with larger cash balances outside an ISA, which in practice often means retirees, business owners holding cash personally, and anyone sitting on the proceeds of a property sale or inheritance.

Worked examples

All examples assume a 4% interest rate held for a full tax year, and that the saver uses up their personal allowance with other income. Each example assumes all taxable interest falls within the tax band stated. They are illustrations, not predictions of future rates.

Higher rate taxpayer with £100,000 in savings
Interest of £4,000, less the £500 allowance, leaves £3,500 taxable. Tax today is £1,400. From April 2027 it's £1,540, so £140 more each year.

Basic rate taxpayer with £40,000 in savings
Interest of £1,600, less the £1,000 allowance, leaves £600 taxable. Tax today is £120. From April 2027 it's £144.

Additional rate taxpayer with £250,000 in savings
Interest of £10,000, with no allowance. Tax today is £4,500. From April 2027 it's £4,900, so £400 more each year.

The increase on its own isn't dramatic. What matters more is that, on the interest taxed at those marginal rates, a 4% return falls to 2.24% or 2.04% after tax. Over several years that gap compounds.

Five ways to protect your interest

1. Use your full ISA allowance, including cash

Interest inside an ISA is tax free, and following the Budget the full £20,000 can go into a cash ISA. A couple can shelter £40,000 a year. If you're holding large cash balances outside an ISA, a couple using £20,000 each before 5 April 2027 and again from 6 April 2027 could shelter £80,000 across the two tax years, provided neither has already used their ISA allowance for those years.

2. Hold cash in the right name

Genuine gifts of cash between spouses and civil partners are generally free of inheritance tax and don't normally trigger capital gains tax. Different rules can apply in cross-border circumstances. If one of you is a higher rate taxpayer and the other pays basic rate or no tax at all, holding savings in the lower earner's name can reduce the tax significantly.

A spouse with no other income can receive interest of up to £18,570 a year tax free, made up of the £12,570 personal allowance, the £5,000 starting rate for savings and the £1,000 Personal Savings Allowance. A gift between spouses is an outright gift, so this works best where you're comfortable with that.

3. Think about timing on fixed rate bonds

Interest is generally taxed when it arises for tax purposes, which depends on the account's terms. If interest is credited annually and you can access it, even with an early withdrawal penalty, it may be taxable each year. Where interest can't be accessed until maturity, it may all be taxable in the year the bond matures, at the rate in force then. It's worth checking the provider's terms before relying on the timing.

4. Consider Premium Bonds and low coupon gilts

Premium Bond prizes are tax free, up to the £50,000 holding limit, although the return isn't guaranteed and depends on prize draws.

Gilts are free of capital gains tax. Low coupon gilts bought below their redemption value return most of their yield as a tax free gain at maturity, with only the small coupon taxed as savings income. For higher and additional rate taxpayers this can be more efficient than a savings account paying a similar headline rate. Unlike cash savings, gilts can rise or fall in market value before maturity, and transaction costs and the price paid affect the return. This treatment doesn't extend in the same way to gilt strips. We explain how this works in our guide to gilt ladders.

5. Look at pension contributions

Personal pension contributions made under relief at source extend your basic rate band. Where this brings your total taxable income, including savings interest, below the higher rate threshold, your Personal Savings Allowance may increase from £500 to £1,000 and the rate on any interest above it falls. The contribution also earns tax relief in its own right, although pension allowances, eligibility and access restrictions need considering. Our pension tax relief guide covers how relief works.

How this fits with the rest of the Budget

The same Budget raised tax on property income by the same two points from April 2027, and confirmed that most unused pension funds will fall into inheritance tax from 6 April 2027. Our Autumn Budget 2026 summary covers the full picture, and our cash ISA update explains the reversal of the £12,000 cap.

Frequently asked questions

When does the savings tax rise start?

From 6 April 2027, the start of the 2027/28 tax year, subject to legislation. Interest arising before then is taxed at the current 20%, 40% and 45% rates.

Is the Personal Savings Allowance changing?

No. It stays at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers have no allowance.

Does the rise affect interest in a cash ISA?

No. Interest inside an ISA remains tax free, and the full £20,000 allowance can still be paid into a cash ISA.

Do Scottish taxpayers pay the same savings rates?

Yes. Savings income is taxed at UK rates across the whole of the UK, including Scotland.

Are Premium Bond prizes affected?

No. Premium Bond prizes remain free of income tax and capital gains tax.

How much more will I pay?

It depends on your tax band and how much interest you earn above your allowance. A higher rate taxpayer earning £4,000 of interest would pay £140 more each year from April 2027.

Next steps

If you're holding significant cash outside an ISA, now is a good time to review where it sits and in whose name. If you'd like to talk it through, book a discovery call and we can take it from there.

DISCLAIMER: This article is general information, not personal advice. Tax treatment depends on individual circumstances and may change. The value of investments can fall as well as rise and you may get back less than you invested.