The £5,000 savings band that people on low earnings often overlook

After the house sale, the money sat in a fixed-rate account earning more interest than it had in years. The pension, a small workplace one on top of the State Pension, came to a little over £15,000 a year. When a friend mentioned paying tax on savings interest, the assumption was that the usual allowance was all there was. It was not.

Alongside the better-known Personal Savings Allowance sits a separate band called the starting rate for savings. It is worth up to £5,000 of interest a year at 0%, and it is aimed squarely at people on low earnings or modest pensions.

What the starting rate for savings is

The starting rate for savings is a band of savings income taxed at 0%. For the 2026/27 tax year, which began on 6 April 2026, the band is £5,000. It applies to interest from bank and building society accounts and similar savings income, not to wages or pensions.

The catch is that the band is only fully available to people whose other taxable income is no higher than the Personal Allowance, which is £12,570 in 2026/27. Above that point it starts to shrink, and once other income reaches £17,570 it has gone.

How earnings and pensions shrink the band

HMRC’s rule is simple: every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1. “Other income” here means non-savings income, such as wages, self-employed profit, rental profit, the State Pension and private or workplace pensions.

HMRC gives its own example: someone earning £16,000 in wages has £3,430 above the Personal Allowance, so their starting rate band falls from £5,000 to £1,570. If their interest that year is £200, there is no tax to pay on it.

This is why the band matters to people in their sixties and seventies. A full new State Pension of £241.30 a week comes to £12,547.60 over a year, just under the Personal Allowance. A small private pension on top can leave a good part of the £5,000 band still in place.

Four worked examples

The table shows how much interest could be taxed at 0% for four people with different levels of other income. It includes the Personal Savings Allowance of £1,000 for basic rate taxpayers, which sits on top of the starting rate band.

Assumes the standard £12,570 Personal Allowance, no dividends and that each person is a basic rate taxpayer once interest is added. Joan’s figure also includes the £2,570 of Personal Allowance left unused by her other income.

Joan’s case shows the full effect. Her £10,000 leaves £2,570 of Personal Allowance spare, which can cover interest first. The whole £5,000 starting rate band follows, then the £1,000 Personal Savings Allowance, so up to £8,570 of interest is taxed at 0%. Ann’s other income is above £17,570, so for her only the Personal Savings Allowance applies.

Why the order of income matters

Income Tax treats income in layers. Non-savings income, such as pensions and wages, is counted first and uses up the Personal Allowance before anything else. Savings income comes next, and dividends last.

That order is why the band depends on your other income and not on how much interest you earn. Someone with £2,000 of pension income and £15,000 of interest could still have the whole £5,000 band, because the interest sits in its own layer on top. Someone with £18,000 of pension income gets none of it, however little interest they have.

The band depends on your other income and not on how much interest you earn.

How HMRC handles it in practice

Most people do not need to claim the starting rate. Banks and building societies report the interest they have paid to HMRC after 5 April each year, and HMRC adds interest from all accounts together. If tax is owed, HMRC sends a tax calculation by post or to your Personal Tax Account, usually broken down account by account. Interest on ISAs is not taxed and does not count.

Interest is usually paid without tax taken off. Where tax has been deducted, HMRC’s refund service on GOV.UK can be used for the current tax year and the previous four, with a separate claim for each year. People registered for Self Assessment claim through their tax return instead. Claiming directly from HMRC is free.

What changes from April 2027

The starting rate itself is not changing: HMRC’s published rates for 2027/28 still show a £5,000 band at 0%, and the Personal Allowance stays at £12,570.

The rates on savings income above the allowances are rising. Budget 2025 announced that from 6 April 2027 the savings basic, higher and additional rates would rise by two points each, to 22%, 42% and 47%. The Budget published on 28 October 2026 added a further two points, so the announced rates from 6 April 2027 are 24%, 44% and 49%. These rates apply across the UK. Because interest above the 0% bands is due to be taxed more heavily, each £1 of the starting rate band will make a slightly larger difference for those who have it.

Who this is most relevant to, and what to check

The band is most relevant to people whose income from wages, pensions and other non-savings sources is below £17,570: many pensioners on the State Pension with a small private pension, part-time workers and people between jobs. Points worth checking:

• Your total taxable non-savings income for the tax year, including the State Pension, which is taxable even though it is paid without tax taken off.
• How far that total sits above £12,570, which tells you how much of the £5,000 band is left.
• Your interest across all non-ISA accounts, including joint accounts, where HMRC normally treats half as yours.
• Any tax calculation letter from HMRC, to see whether the band has been applied.

For context on the pension side, our article on why the State Pension increase looks different on every payment explains the 2026/27 rates, and our guide to what Pension Credit can lead to covers help for people on the lowest incomes.

The short version

In 2026/27 up to £5,000 of interest can be taxed at 0% under the starting rate for savings, on top of any unused Personal Allowance and the Personal Savings Allowance. Each £1 of other income above £12,570 removes £1 of the band, and it disappears at £17,570. The band stays at £5,000 for 2027/28, while the rates on taxable savings income are due to rise from 6 April 2027.