Savings Tax Is Going Up in 2027: How to Protect the Interest You Earn

For years, savers barely worried about tax on their interest, because rates were so low that most people earned very little. That has changed. Interest rates are much higher, savings are earning real money again, and now a tax rise is on the way. From April 2027, the tax on savings income goes up by 2 percentage points. More savers than ever are about to owe the taxman on the interest they earn.

The good news is there are legal, straightforward ways to shelter your savings and keep more of what you earn. This guide explains how savings tax works, what is changing in 2027, and the practical steps you can take to protect your interest.

What is changing in April 2027?

From April 2027, the tax rates on savings and property income rise by 2 percentage points. In plain terms, that means:

• basic-rate savers will pay 22% on taxable savings interest,
• higher-rate savers will pay 42%, and
• additional-rate savers will pay 47%.

This is a meaningful jump. Combined with higher interest rates pushing up how much interest people earn, it means the tax on savings will hit harder and reach more people than it has in years.

How the Personal Savings Allowance works

Before you pay any tax on savings interest, you get a tax-free buffer called the Personal Savings Allowance (PSA). How much you get depends on your income tax band:

• Basic-rate taxpayers get a PSA of £1,000. You can earn up to £1,000 of interest a year tax-free.
• Higher-rate taxpayers get £500.
• Additional-rate taxpayers get £0. They have no allowance and pay tax on all their savings interest.

There is also a starting rate for savings, which can give up to £5,000 of extra tax-free interest to people on low incomes. The lower your other income, the more of this you can use. It fades away as your other income rises above the personal allowance.

Why more savers are getting caught

Here is the trap. When interest rates were tiny, you needed a huge pile of savings to earn even £1,000 of interest. Almost nobody breached their allowance. But with higher rates, a much smaller pot now generates £1,000 or more a year. So ordinary savers, not just the wealthy, are crossing their PSA and owing tax.

Add the 2027 rate rise on top, and the effect grows. The same amount of interest now costs you more in tax than it would have before. That is why sheltering your savings has become worth real money.

A simple example

Imagine a basic-rate saver with money in an ordinary savings account earning £1,500 of interest in a year. The first £1,000 is covered by their Personal Savings Allowance, so it is tax-free. The remaining £500 is taxable. Under the new 22% rate from April 2027, that £500 would cost £110 in tax. The same £1,500 of interest earned inside a cash ISA would cost nothing at all. That gap is the whole reason sheltering matters. It is the difference between keeping your interest and handing a slice of it over.

Legal ways to shelter your interest

You are allowed to protect your savings from tax using several tried-and-tested tools. Here are the main ones.

1. Cash ISAs

Interest earned inside a cash ISA is completely tax-free and does not count towards your Personal Savings Allowance. For most savers this is the first place to look. Bear in mind the ISA rules are changing, so read our guide on the £12,000 cash ISA cut to understand the new limits before you plan.

2. Premium Bonds

Premium Bonds from NS&I do not pay interest in the usual way. Instead, your money is entered into a monthly prize draw, and any prizes you win are tax-free. You will not always win, and returns are not guaranteed, but the prizes never count towards your savings tax. Some savers like them as a tax-free home for spare cash.

3. Pensions

Paying into a pension is one of the most tax-efficient things you can do. Money grows free of tax inside the pension, and you usually get tax relief on what you pay in, which is effectively a government top-up on your contributions. The catch is you cannot access it until later in life, currently your late fifties for most people, so it suits long-term money rather than savings you might need soon. For money you are happy to lock away for retirement, though, the tax savings can be substantial, and the interest inside grows without the taxman taking a cut each year.

4. Spread savings between spouses

If you are married or in a civil partnership, you each have your own Personal Savings Allowance. Moving some savings into the name of the partner who pays less tax, or who has spare allowance, can reduce the couple's total tax bill. This simple move is often overlooked.

5. Use NS&I products

Beyond Premium Bonds, NS&I (National Savings and Investments) is backed by the government and offers a range of savings products, some of which come with tax advantages. It is worth checking what they currently offer when you are deciding where to keep your cash.

Do you have to fill in a tax return?

Many savers worry this all means extra paperwork. For most people, it does not. Banks and building societies report the interest they pay you directly to HMRC. If you owe a small amount of tax on savings interest, HMRC usually collects it by quietly adjusting your tax code, so the right amount comes out of your wages or pension over the year. You often will not need to lift a finger.

That said, it pays to keep your own rough tally of the interest you earn across all your accounts. If HMRC's figures are wrong, or your interest jumps suddenly, you want to spot it. And if your savings income becomes large, you may be asked to complete a self-assessment tax return. Knowing your numbers keeps you in control either way.

What about property income?

The 2027 rise does not only touch savings interest. It also applies to property income, which mostly means the rent landlords earn. If you let out a property, the profit you make will be taxed at the same higher rates of 22%, 42% or 47% depending on your band. Landlords already face a tighter tax regime than they once did, so this adds to the pressure. If you rent out a property, it is worth reviewing your figures ahead of April 2027, keeping careful records of allowable costs, and considering whether professional advice would help you structure things efficiently. The rules around property are complex, and small details can make a real difference to your bill.

Order your savings sensibly

When you are deciding where to put new savings, a simple order of priority helps. Many people start by filling tax-free wrappers first, such as their cash ISA, because that interest never gets taxed. Next they consider whether spreading money to a lower-taxed spouse or into Premium Bonds makes sense. Only then do they leave the remainder in ordinary taxable accounts, ideally keeping that balance small enough that the interest stays within their Personal Savings Allowance. Following a rough order like this means the taxable slice of your savings is as small as it can be.

Do not chase interest into a tax trap

It can be tempting to move all your money to whichever ordinary account pays the highest headline rate. But a slightly higher rate in a taxable account can end up worse than a marginally lower rate inside a tax-free wrapper, once the taxman takes a slice. Always compare the return you actually keep after tax, not just the advertised rate. For many savers, a cash ISA paying a touch less than a taxable account still wins, because you keep every penny of the interest. Doing this simple after-tax comparison stops you from chasing a bigger number that quietly leaves you with less.

A quick word on planning ahead

Because the tax rise lands in April 2027, you have time to organise your savings before then. Filling your ISA allowances, checking whether Premium Bonds suit you, and balancing savings across a couple are all things you can set up in advance. A little planning now can save a noticeable amount of tax later.

It also helps to keep a rough eye on how much interest you are earning across all your accounts. Banks report interest to HMRC, and if you go over your allowance you may find your tax code adjusted or a bill arriving. Knowing your numbers means no nasty surprises.

The takeaway

The 2027 savings tax rise, taking rates to 22%, 42% and 47%, means the interest you work hard to earn is more exposed than ever. Understand your Personal Savings Allowance, remember the starting rate for savings if your income is low, and then shelter what you can. Cash ISAs, Premium Bonds, pensions, spreading savings between spouses, and NS&I products all help you keep more of your money legally. Set things up before April 2027 and you take the sting out of the change.

This article is general information, not personal financial advice. Tax rules can change and your own position is unique, so do your own research or speak to a qualified adviser.