How to protect your savings from tax
Higher tax on savings interest could reduce the income from your nest egg. Using your allowances and choosing suitable accounts can help you keep more of what your money earns. This guide explains the Budget announcement and compares the main options.
What changes in April 2027
Budget 2026 announced higher tax rates on savings interest from 6 April 2027. These future rates are subject to legislation. They apply to taxable interest across the UK, including Northern Ireland. [1]
| Tax band | Current rate 2026 to 2027 |
Announced rate 2027 to 2028 |
Annual Personal Savings Allowance |
| Basic | 20% | 24% | £1,000 |
| Higher | 40% | 44% | £500 |
| Additional | 45% | 49% | £0 |
The Personal Savings Allowance covers interest, not the amount you have saved. Interest from all your taxable accounts is added together. If your other income is low, unused Personal Allowance and the starting rate for savings may let you earn more interest tax free. [2, 3]
What tax could you pay
The table below assumes a full year of interest at 5% and uses the announced rates for 2027 to 2028.
| Savings | Annual interest |
Basic rate tax |
Higher rate tax |
Additional rate tax |
| £10,000 | £500 | £0 | £0 | £245 |
| £20,000 | £1,000 | £0 | £220 | £490 |
| £50,000 | £2,500 | £360 | £880 | £1,225 |
| £100,000 | £5,000 | £960 | £1,980 | £2,450 |
Assumptions: the savings are outside an ISA; the allowance shown above is fully available; and there is no unused Personal Allowance or starting rate for savings. Interest does not move the saver into another tax band or reduce their Personal Allowance. The 5% rate is illustrative, not a product offer.
For example, a higher rate taxpayer with £20,000 earning £1,000 interest would pay £220 tax: (£1,000 minus £500) × 44%.
The main ways to shelter savings
Tax is one part of the decision. Compare the return you could receive, when you need the money and any withdrawal restrictions before moving it.
| Option | Tax treatment for an individual | Limit or main condition |
| Ordinary savings account | Interest above available allowances is taxable. | No ISA allowance used. |
| Cash ISA | Interest is free of UK Income Tax. | £20,000 annual allowance shared across your adult ISAs. |
| Premium Bonds | Prizes are free of UK Income Tax and Capital Gains Tax. | Maximum holding of £50,000 per person. |
| Conventional UK gilt held directly | Interest can be taxable; capital gains are exempt. | Purchase price, maturity date and charges affect the return. |
Cash ISAs keep interest tax free
A cash ISA is a savings account with tax protection. You can put up to £20,000 into adult ISAs in the current tax year, which ends on 5 April 2027. This is one combined allowance, rather than £20,000 for each account. [4]
The Budget announced that the £20,000 cash ISA limit will also be retained from April 2027. The previously planned £12,000 limit will not take effect. [5]
Compare easy access and fixed term accounts. A fixed term may offer a different rate but restrict withdrawals. If you already have an ISA and want to switch providers, use the receiving provider’s ISA transfer process to preserve its tax protection. [10]
Premium Bonds offer prizes rather than interest
Premium Bonds let you hold up to £50,000 per person and enter monthly prize draws. Any prizes are tax free, but you could win nothing. [6]
The advertised prize fund rate describes the overall prize pot. It is not an interest rate promised to each saver. Keep this in mind if you rely on your savings for a regular income.
Gilts need a closer look
Gilts are loans to the UK Government. For a UK individual holding a conventional gilt directly, regular interest payments, called coupons, can be taxable. Capital gains are exempt from Capital Gains Tax. [7, 8, 9]
A low coupon gilt bought below its repayment value may deliver much of its return as a capital gain. The actual result depends on the purchase price, maturity date and charges. Prices can fall before maturity, so selling early can mean a loss. [7, 8]
An example with 50000 pounds
Suppose one person has £50,000, their full ISA allowance available and no existing Premium Bonds. One possible split is £20,000 in a cash ISA and £30,000 in Premium Bonds. Interest in the ISA and any Premium Bond prizes would be tax free.
Compare this with keeping all £50,000 in an ordinary savings account earning 5% for a full year, using the same assumptions as the earlier table.
| Tax band | Annual tax on ordinary savings |
Tax on ISA interest and Bond prizes |
Tax avoided in this comparison |
| Basic | £360 | £0 | £360 |
| Higher | £880 | £0 | £880 |
| Additional | £1,225 | £0 | £1,225 |
Tax avoided is not the same as extra income. The ISA may pay a different rate and Premium Bond prizes are uncertain. Compare the overall return after tax, not just the size of the tax bill.
Larger balances and couples
For a £100,000 balance, £20,000 in an ISA and £50,000 in Premium Bonds would leave £30,000 to consider separately. That remainder could stay in ordinary savings or use ISA allowances in future tax years. Gilts require a separate investment decision.
Each eligible adult has their own ISA allowance and Premium Bond holding limit, so couples can consider both sets of allowances. Transferring money to a partner’s sole account changes its ownership and needs careful thought.
Before moving your money
- Add up the interest you expect from all taxable accounts and check your available allowances.
- Check how much of this tax year’s ISA allowance you have already used.
- Keep enough money accessible for bills and unexpected costs.
- Compare the return after tax, withdrawal terms and charges. Seek regulated investment advice if you need help choosing investments.
General information as at 1 November 2026. Your tax position depends on your circumstances. The April 2027 rates described here are Budget announcements subject to legislation.
Sources
[1] HMRC Budget 2026 overview of tax legislation and rates
[3] GOV UK tax on savings interest
[5] HMRC tax free savings newsletter October 2026
[7] HMRC Capital Gains Manual on gilt edged securities
[8] UK Debt Management Office guide to gilts
[9] HMRC 2026 notes on reporting gilt interest
[10] GOV UK transferring your ISA
Important Disclaimer
The information published in this article by Bernard Tierney & Company, Accountants & Tax Advisers, is provided for general information and guidance only. It does not constitute professional accounting, taxation, legal or financial advice.
Whilst every reasonable effort is made to ensure accuracy at the date of publication, tax legislation, HMRC guidance and government policies may change. Information in older articles may therefore be out of date.
Individual circumstances vary. Readers should obtain appropriate professional advice before making financial, taxation or business decisions based on this information.
Bernard Tierney & Company accepts no responsibility for losses arising from reliance on this information, to the extent permitted by law. Nothing excludes liability that cannot lawfully be excluded.
Reading this article does not establish an accountant-client relationship.
Need professional advice?
Contact Bernard Tierney & Company:
info@bernardtierney.co.uk