How pro rata salary works
The sum, what 15 to 37.5 hours pay, why take-home is more than the same share, and pro rata holiday.
Most savers pay no tax on their interest, because three allowances cover it first. With higher balances and better rates, though, more people now go over them. Here is how the allowances work this tax year, what changes in April 2027, and how HMRC collects anything you owe.
In 2026/27 the Personal Savings Allowance covers £1,000 of interest for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get none. From 6 April 2027 interest above your allowances will be taxed at 24%, 44% or 49%, up from 20%, 40% and 45%.
The three allowances
1. Your Personal Allowance
The first £12,570 of all your income is tax free. If your wages or pension do not use all of it, the rest covers savings interest.
2. The starting rate for savings
Up to £5,000 of interest can be tax free on top of that. It shrinks by £1 for every £1 of other income above £12,570, so it is gone once your other income reaches £17,570.
3. The Personal Savings Allowance
Then £1,000 of interest is tax free for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers, with income over £125,140, get no allowance.
How much interest is tax free
| Other income | Starting rate | Savings allowance | Tax-free interest |
|---|---|---|---|
| £12,570 | £5,000 | £1,000 | £6,000 |
| £15,000 | £2,570 | £1,000 | £3,570 |
| £16,000 | £1,570 | £1,000 | £2,570 |
| £17,570 to £50,270 | £0 | £1,000 | £1,000 |
| £50,271 to £125,140 | £0 | £500 | £500 |
| Over £125,140 | £0 | £0 | £0 |
This is why the question often comes up in retirement. With a modest pension as your only other income, part of the starting rate is still available, and a few thousand pounds of interest can be tax free.
Two worked examples
| Saver | Interest | Taxed | Tax now | From April 2027 |
|---|---|---|---|---|
| Earns £35,000 | £3,000 | £2,000 | £400 | £480 |
| Earns £60,000 | £2,000 | £1,500 | £600 | £660 |
The April 2027 figures assume the allowances stay as they are. The government's published rates show the Personal Savings Allowance and the £5,000 starting rate unchanged for 2027/28.
How the tax is collected
Banks pay interest without taking tax off and report it to HMRC after the tax year ends. If you are employed or get a pension and your interest is £10,000 or less, HMRC usually collects the tax by changing your tax code. If there is no tax code to change, HMRC may send a Simple Assessment letter. If your interest is over £10,000 you need to file a Self Assessment return.
Interest on a joint account is split equally between the account holders, so each of you uses your own allowances on your half.
Keeping interest tax free
Interest inside an ISA is always tax free and does not use any of your allowances. The ISA allowance is £20,000 a year, and it can all go into cash. With the higher rates coming in April 2027, moving savings into an ISA is worth more than it was.
Work out your own tax
The savings interest tax calculator applies all three allowances to your own income and interest. The ISA allowance calculator shows how much of this year's allowance you have left.
Sources: GOV.UK, Tax on savings interest, How you pay tax on savings interest and Income Tax rates and Personal Allowances; HM Treasury and HMRC, Changes to tax rates for property and savings income and Budget 2026 Annex A: rates and allowances. Rates for England, Wales and Northern Ireland. Checked 1 November 2026.
This is general information, not financial or tax advice.
It explains published rules and figures. Your own position depends on your full circumstances,
so speak to a qualified adviser before acting on it.