Introduction
The tax on savings interest is rising twice over, and both increases land on the same day. From 6 April 2027, interest earned outside an ISA will be taxed at 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers. In the current 2026/27 tax year, the same interest is taxed at 20%, 40% and 45%.
That is a four percentage point increase from one tax year to the next, which is more than most of the Budget coverage suggested. Two separate rises have been stacked on the same start date. Budget 2025 had already legislated a two point increase from 6 April 2027, taking the savings rates to 22%, 42% and 47%. The Budget delivered on 28 October 2026 added a further two points to that same date, reaching 24%, 44% and 49%.
Both sets of Budget documents are accurate. The 2026 measure describes a two point rise, because it is measured against the rates already on the statute book for 2027/28. A saver comparing this year with next year sees the full four points.
Interest earned inside a cash ISA or a Stocks and Shares ISA is untouched. It was untaxed before and it stays untaxed, at any income level, with no allowance to use up. The Budget also confirmed that the cash ISA limit stays at £20,000, so the plan to restrict cash ISA subscriptions has been dropped.
This article is for general information and education. It is not financial advice and does not take account of your personal circumstances. Tax rules, rates and allowances can change. The value of investments can fall as well as rise and you may get back less than you put in. Capital at risk.
Quick Answer: Is The Tax On Savings Interest Going Up?
Yes. From 6 April 2027 the tax on savings interest outside an ISA rises to 24%, 44% and 49%, up from 20%, 40% and 45% in the 2026/27 tax year. The Personal Savings Allowance and the starting rate for savings are unchanged. Interest inside an ISA remains untaxed, and the cash ISA limit stays at £20,000.
The Decision In One Line
If you hold cash outside an ISA and your interest already uses up your allowance, the gap between a taxable savings account and a cash ISA widens by four percentage points on 6 April 2027. The question stops being whether an ISA is worth the admin, and becomes how much of your cash belongs inside one before the 2026/27 tax year ends on 5 April 2027.
How The Tax On Savings Interest Is Changing
Savings interest does not have its own tax band in the way employment income does. It sits on top of your other income and is charged at the savings rate for whichever band it lands in, once the starting rate for savings and the Personal Savings Allowance have been applied.
Only the rates are moving. The allowances in front of them are frozen at current levels, which means the same amount of interest becomes more expensive rather than a greater share of it becoming taxable.
| Savings income | 2026/27 tax year | 2027/28 tax year |
|---|---|---|
| Basic rate | 20% | 24% |
| Higher rate | 40% | 44% |
| Additional rate | 45% | 49% |
| Starting rate for savings | 0% on up to £5,000 | 0% on up to £5,000 |
| Personal Savings Allowance, basic rate | £1,000 | £1,000 |
| Personal Savings Allowance, higher rate | £500 | £500 |
| Personal Savings Allowance, additional rate | Nil | Nil |
| ISA subscription limit | £20,000 | £20,000 |
Source: HM Treasury, Budget 2026 Overview of Tax Legislation and Rates, Annex A. Verified 2 November 2026.
Four percentage points, not two
The rate on savings interest moves from 20% to 24% for a basic rate taxpayer between the 2026/27 and 2027/28 tax years, because two separate two point rises take effect on the same date.
Cash ISA Versus A Taxable Savings Account
A cash ISA and an ordinary savings account can hold identical money at an identical interest rate and still produce different net returns. The difference is not the headline rate. It is whether the interest is visible to HMRC at all.
| Cash ISA | Taxable savings account | |
|---|---|---|
| Tax on interest | None, at any income level | 24%, 44% or 49% from 6 April 2027 |
| Allowances needed first | None | Starting rate for savings, then Personal Savings Allowance |
| Limit on new money each year | £20,000 across all your ISAs | No limit |
| Interest reported to HMRC | No | Yes, automatically by the bank |
| Counts towards total income | No | Yes, and can affect other thresholds |
| Moving to a different provider | ISA transfer, does not use allowance | Ordinary withdrawal and deposit |
Source: HM Treasury Budget 2026 measure on savings and property income rates, and GOV.UK guidance on tax free interest. Verified 2 November 2026.
The Tax Treatment Of Each Wrapper
Outside an ISA, two allowances stand between your interest and a tax bill, and they work very differently.
The starting rate for savings gives you up to £5,000 of interest at 0%, but only if your other income is low. Every £1 of other taxable income above the £12,570 Personal Allowance reduces that £5,000 band by £1, so it is fully gone once other income reaches £17,570. Most people in work never see it.
The Personal Savings Allowance is simpler and narrower. It gives £1,000 of tax free interest to basic rate taxpayers, £500 to higher rate taxpayers, and nothing at all to additional rate taxpayers.
Inside an ISA there is no allowance to use and no calculation to do. Interest is not taxed, is not reported on a tax return, and never enters your total income figure. That last point matters, because total income drives other thresholds, including the £100,000 Personal Allowance taper.
Low other income: £150,000 of savings before tax
A saver with other taxable income of £12,570 or less keeps the full £5,000 starting rate band plus the £1,000 Personal Savings Allowance, so £6,000 of interest is tax free. At 4% that takes £150,000 of savings.
Basic rate salary: £25,000 of savings before tax
Once other income reaches £17,570 the starting rate band has gone entirely. A basic rate taxpayer is left with the £1,000 Personal Savings Allowance, which at 4% is used up by about £25,000 of savings.
Higher rate: £12,500 of savings before tax
A higher rate taxpayer has a £500 Personal Savings Allowance and no starting rate band, so roughly £12,500 at 4% uses it up. An additional rate taxpayer has no allowance and pays tax from the first pound of interest.
The £150,000 figure is the official illustration used in the Budget measure, and it is the one most likely to mislead. It assumes other income at or below the Personal Allowance. On a typical salary, the real headroom is the £1,000 Personal Savings Allowance on its own.
What The Tax On Savings Interest Will Actually Cost
The figures below assume a gross interest rate of 4% and no starting rate band, which is the position of anyone with other taxable income above £17,570. The same money held inside a cash ISA produces a tax bill of nil in both tax years.
The chart sets the tax on a £100,000 taxable cash holding against the same money inside a cash ISA.
Tax bill in pounds per year. Rates from HM Treasury, Budget 2026 Annex A. Interest and tax calculated by YourWalletManager. Verified 2 November 2026.
| Taxpayer | Cash outside an ISA | Interest above allowance | Tax 2026/27 | Tax 2027/28 | Increase |
|---|---|---|---|---|---|
| Basic rate | £20,000 | £0 | £0 | £0 | £0 |
| Basic rate | £50,000 | £1,000 | £200 | £240 | £40 |
| Basic rate | £100,000 | £3,000 | £600 | £720 | £120 |
| Higher rate | £20,000 | £300 | £120 | £132 | £12 |
| Higher rate | £50,000 | £1,500 | £600 | £660 | £60 |
| Higher rate | £100,000 | £3,500 | £1,400 | £1,540 | £140 |
Interest calculated at 4% gross with no starting rate band. Rates from HM Treasury, Budget 2026 Annex A. Calculations by YourWalletManager. Verified 2 November 2026.
For a single year these increases look modest, and in isolation they are. The direction is the point. The same cash inside an ISA pays nothing, every year, and an unused ISA allowance cannot be recovered once the tax year closes. Our compound interest calculator shows what a difference of this size does over a longer holding period.
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Access And Trade-Offs
A cash ISA is not automatically the better home for cash, and three trade-offs are worth weighing before moving money.
The £20,000 limit is shared. It covers everything you pay into all of your ISAs in a tax year, cash and investments together. A taxable savings account has no limit on how much you can hold.
Compare net, not gross. Cash ISA rates are sometimes lower than the best taxable accounts, so the comparison that matters is the rate after tax. From 6 April 2027 a basic rate taxpayer keeps 76% of taxable interest above their allowance, rather than 80% now.
Move money as a transfer, not a withdrawal. Taking cash out of an existing ISA and paying it back in spends your allowance twice over. A formal ISA transfer does not count as a new subscription at all.
Protection differs by product rather than by wrapper, and the two limits are not interchangeable. Cash held with a bank or building society, including inside a cash ISA, is covered by the Financial Services Compensation Scheme up to £120,000 per eligible person per institution, a limit that took effect on 1 December 2025. Investments, including those held in a Stocks and Shares ISA, are covered separately up to £85,000 per eligible person per firm.
The cash ISA rules have had a volatile year, and our guide to the cash ISA limit for 2027 covers what was proposed and what has survived.
Who Should Pick Which
There is no single answer, but the allowance arithmetic narrows it considerably.
The ISA case is strongest at the additional rate
With no Personal Savings Allowance and no starting rate band, every pound of interest outside an ISA is taxed, at 49% from 6 April 2027. There is no threshold to stay underneath.
Emergency money comes first, wrapper second
Cash you may need at short notice belongs somewhere you can actually reach it. Many cash ISAs are instant access, but fixed term versions are not, and a withdrawal from a non flexible ISA cannot be replaced without using fresh allowance.
A basic rate taxpayer with less than roughly £25,000 in cash at 4% pays no tax on the interest either way, so for them the decision is genuinely open and the rate on offer should decide it. Above that level, and for any higher or additional rate taxpayer, the ISA keeps money that the taxable account hands to HMRC.
If some of your longer term money would be better invested than saved, a Stocks and Shares ISA draws on the same £20,000 allowance. For anyone saving towards a first home, the First Time Buyer ISA announced at the Budget is a separate route again.
Frequently Asked Questions
Key Takeaways
The rate rises four points, not two
Savings interest outside an ISA goes from 20%, 40% and 45% in 2026/27 to 24%, 44% and 49% in 2027/28, because two separate two point increases share the same 6 April 2027 start date.
The allowances are frozen, not cut
The starting rate for savings stays at 0% on up to £5,000, and the Personal Savings Allowance stays at £1,000 for basic rate and £500 for higher rate taxpayers. Additional rate taxpayers still receive none.
The cash ISA limit survived at £20,000
The plan to restrict cash ISA subscriptions has been dropped, and the £20,000 ISA subscription limit applies in both the 2026/27 and 2027/28 tax years.
ISA interest never enters the calculation
Interest inside a cash ISA is untaxed at any income level, is not reported to HMRC, and does not count towards your total income, so it cannot push you over other income tested thresholds.
Sources: HM Treasury, Income Tax changes to tax rates for property and savings income; Budget 2026 Annex A, rates and allowances; Budget 2026 Overview of Tax Legislation and Rates; HM Treasury technical note on tax rates for property, savings and dividend income; GOV.UK, Tax on savings interest, how much is tax free. All verified 2 November 2026.
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This article is for general information and education. It is not financial advice and does not take account of your personal circumstances. Tax rules, rates and allowances can change. The value of investments can fall as well as rise and you may get back less than you put in. Capital at risk.
