Starting Rate for Savings Calculator: How It Works

The starting rate for savings calculator works out the tax-free savings allowance you may have based on your income, and it tells you how much interest you can earn before paying tax. You enter your total income (including wages, pension, rental profit, and other taxable income) and the calculator returns your starting rate band, your personal savings allowance, and the maximum tax-free interest you can receive. This page explains the rules as they stand in the UK tax system, so you can plan your savings without guessing.

Formula

The calculator uses two UK tax allowances: the starting rate for savings and the personal savings allowance (PSA). The starting rate band is £5,000, but it reduces by £1 for every £1 of your taxable income above the Personal Allowance (£12,570 for the 2024/25 tax year). The formula for the starting rate band is:

Starting rate band = max(0, £5,000 – max(0, taxable income – £12,570))

Where taxable income is your total income before any savings interest, but after other allowances and reliefs. The PSA is £1,000 for basic rate taxpayers (income up to £37,700), £500 for higher rate taxpayers (income between £37,701 and £125,140), and £0 for additional rate taxpayers (income above £125,140). The total tax-free interest is the sum of the starting rate band and the PSA. If your interest exceeds that, the excess is taxed at your marginal rate (20% for basic rate, 40% for higher rate, 45% for additional rate). The calculator assumes a basic rate of 20% for the tax due calculation; if you are a higher or additional rate taxpayer, the tax due will be higher.

Worked Example

Using the default values from the calculator: taxable income = £25,000, savings interest = £500.

1. Calculate income above the Personal Allowance: £25,000 – £12,570 = £12,430.
2. Reduce the starting rate band: £5,000 – £12,430 = –£7,430. Since this is negative, the starting rate band is £0.
3. Determine the PSA: income £25,000 is within the basic rate band, so PSA = £1,000.
4. Total tax-free interest = £0 + £1,000 = £1,000.
5. Since interest of £500 is less than £1,000, tax due = £0.

The calculator shows: starting rate band £0, PSA £1,000, total tax-free interest £1,000, tax due £0. That matches the result.

When to Use This Calculator

Use this calculator if you want to know how much interest you can earn from savings accounts, cash ISAs, or other interest-paying products before paying tax. It is particularly useful when you have income from employment or a pension and also receive interest from savings. The calculator helps you decide whether to put money into a cash ISA (which is always tax-free) or a regular savings account. It also helps you estimate your tax bill if you exceed the allowances.

How to Read the Results

The starting rate band is the amount of interest that can be tax-free at the starting rate (currently 0% for savings income within the band). The personal savings allowance is an additional tax-free amount. The total tax-free interest is the sum of the two – that is the maximum interest you can earn without paying tax. If your actual interest is below that, you owe no tax. If it is above, the calculator shows the tax due at the basic rate. Remember that the starting rate band is only available if your taxable income (excluding interest) is below £17,570 (for 2024/25). If your income is above that, the band is £0.

Common Mistakes and Misconceptions

• Forgetting the Personal Allowance: The starting rate band is reduced by income above £12,570, not by your total income. Many people mistakenly think the band is £5,000 for everyone.
• Confusing the starting rate with the PSA: They are separate allowances. The starting rate is based on your income, while the PSA is based on your tax band.
• Ignoring interest from joint accounts: If you have a joint account, each account holder is taxed on their share of the interest, usually 50% each.
• Assuming all interest is taxable: Interest from cash ISAs is always tax-free and does not count towards the starting rate or PSA.
• Using the wrong tax year: The Personal Allowance and PSA thresholds change occasionally. This calculator uses the 2024/25 figures. Always check the current rates with HMRC.

Limits of the Calculator

This calculator provides an estimate based on the standard UK tax rules. It does not account for:

• Scottish income tax rates (which differ for earned income but not for savings interest).
• Dividend income or other types of investment income.
• Marriage allowance or other tax adjustments.
• Interest from foreign accounts or non-UK savings.
• Changes to tax rates after the 2024/25 tax year.

For a precise calculation, especially if your income is close to a threshold, use HMRC’s official tools or consult a tax professional.

Frequently Asked Questions

What is the starting rate for savings?

The starting rate for savings is a 0% tax rate on up to £5,000 of savings interest. It is available only if your taxable income (excluding interest) is below £17,570. For every £1 of income above the Personal Allowance, the £5,000 band is reduced by £1.

Do I get the starting rate if I earn £30,000?

No. With income of £30,000, you are £17,430 above the Personal Allowance, which wipes out the entire £5,000 starting rate band. However, you still have the personal savings allowance of £1,000 (as a basic rate taxpayer), so you can earn £1,000 of interest tax-free.

Is the personal savings allowance in addition to the starting rate?

Yes. You can receive both the starting rate band and the personal savings allowance. For example, if your income is £15,000, your starting rate band is £2,570 (since £15,000 – £12,570 = £2,430, and £5,000 – £2,430 = £2,570). You also get a PSA of £1,000, so your total tax-free interest is £3,570.

What happens if my interest exceeds the tax-free allowances?

If your interest exceeds the total tax-free amount, the excess is taxed at your marginal rate. For basic rate taxpayers that is 20%, for higher rate 40%, and for additional rate 45%. The calculator shows tax due at 20%, so adjust if you are in a higher band.

Does the calculator work for cash ISAs?

Cash ISA interest is already tax-free, so it should not be included in the interest input. The calculator is for taxable savings accounts. If you only have cash ISAs, you do not need this calculator.

How often do these thresholds change?

The Personal Allowance and PSA have been frozen until 2028 under current plans, but the starting rate band has changed in the past. Always check the latest figures on HMRC’s website or use the calculator with updated values.

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in income | Total taxable income | £ | 25000 | 0 | 1000000
in interest | Savings interest earned | £ | 500 | 0 | 1000000
out band | Starting rate band available | £ | max(0, 5000 - max(0, income - 12570)) | 2
out psa | Personal savings allowance | £ | (income  37700 and income  125140) * 0 | 0
out taxfree | Total tax-free interest | £ | band + psa | 2
out taxdue | Tax due on interest | £ | max(0, interest - taxfree) * 0.2 | 2