Finance Matters Insights
New tax on savings interest: What changes in 2027
Happy Monday,
There's been a lot of noise around the ISA changes coming in April 2027, but a quieter change tucked in alongside them is arguably more relevant for anyone with cash sitting outside an ISA.
From 6 April 2027, the tax on savings interest is going up. So, here's what's actually happening and what it means for you.
🗒️ What's changing
Currently, any interest you earn on savings held outside an ISA is taxed at your income tax rate once you go over your Personal Savings Allowance (PSA).
Your PSA is the amount of interest you can earn each tax year before you owe any tax on it.
The allowance currently sits at:
→ £1,000 for basic-rate taxpayers,
→ £500 for higher-rate,
→ £0 for additional-rate.
Beyond that, interest is taxed at:
- 20% for basic-rate
- 40% for higher-rate
- and 45% for additional-rate
From April 2027, all three tax rates go up by 2 percentage points. So,
- Basic-rate becomes 22%
- Higher-rate becomes 42%
- and additional-rate becomes 47%
To put that in context, if you're a higher-rate taxpayer earning £2,000 of interest above your allowance, your tax bill on that interest jumps from £800 to £840. It feels small on the surface but meaningfully compounding when you're earning at these rates over multiple years.
📌 What this means for you
With top easy-access savings paying around 4.75% AER right now, a basic-rate taxpayer holding £22,000 in a regular savings account has already breached the allowance. A higher-rate taxpayer only needs around £11,000 to hit it.
The rates aren't rising, but the allowances aren't either. So more people are being pulled into paying tax on savings interest every year, and from 2027 the rate they pay will be higher.
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If you have cash savings outside an ISA and you haven't used this year's Cash ISA allowance, prioritise moving that money into a Cash ISA. You can shelter up to £20,000 this tax year, which is your last chance to protect the full amount before the under-65s limit drops to £12,000 from April 2027.
If you hold uninvested cash inside a Stocks & Shares ISA, decide what you actually want to do with it. Either invest it, or move it into a Cash ISA where it can keep earning interest tax-free. Sitting there as cash from April 2027 onwards will be actively costing you.
If you're already maxing out your ISA and still holding cash beyond that, then it's worth being aware that whatever's earning interest outside the wrapper will be taxed more from 2027 than it is today. Something to factor into your planning as we move through the second half of the year.
🔁 To summarise
That's a lot of tax and ISA change announcements in recent weeks so to summarise where we're at:
- Cash ISA allowance drops from £20,000 to £12,000 for under 65s from April 2027
- Uninvested cash sitting in Stocks & Shares ISAs will be subject to 22% tax on interest
- Savings interest tax rates increase from April 2027 by two percentage points
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F
Fisayo Martins
Founder at Finance Matters UK
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