Tax on Savings Interest and Dividends: When You Need to Report It

Personal savings allowance

£1,000 for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate, plus a starting rate for savings of up to £5,000 for lower earners. See the official tax on savings interest guidance for the current rules.

Dividend allowance

The first £500 of dividends is tax-free for 2025/26, with rates of 8.75%, 33.75% or 39.35% above it. The official tax on dividends guidance sets out who must report and pay.

When to file

If untaxed interest or dividend income exceeds £10,000, or you owe tax that cannot be collected via PAYE, HMRC expects a Self Assessment return.

Using ISAs

Interest and dividends in ISAs are tax-free and do not need reporting.

The allowances that shelter savings and dividends

UK tax on savings interest and dividends works through a layered set of allowances, and they apply in a particular order. Your Personal Allowance of £12,570 is used first against non-savings income, such as salary or self-employed profit. If that income is low, you may also qualify for the starting rate for savings of up to £5,000, which taxes interest at 0%. The starting rate is reduced by £1 for every £1 of non-savings income above the Personal Allowance, so it disappears for most employees.

• Personal Savings Allowance: £1,000 of interest at 0% for basic rate taxpayers, £500 for higher rate taxpayers, and nil for additional rate taxpayers.
• Dividend allowance: £500 of dividends at 0% for everyone.
• ISA allowance: £20,000 a year of tax-free savings or investments, which do not count towards any of the above.

Interest above the allowances is taxed at 20%, 40% or 45%, depending on the band it falls in. Dividends above the allowance are taxed at 8.75%, 33.75% or 39.35% in 2025/26. From April 2026 the basic rate rises to 10.75% and the higher rate to 35.75%, while the additional rate stays at 39.35%. Our 2026/27 dividend rates guide explains the change.

Worked example: a basic rate taxpayer

This is an illustrative example for 2025/26. An employee earns a salary of £35,000, receives £2,400 of savings interest and £3,000 of dividends from shares held outside an ISA.

• Non-savings taxable income is £35,000 − £12,570 = £22,430, so no starting rate applies.
• Interest: the first £1,000 is covered by the Personal Savings Allowance. The remaining £1,400 is taxed at 20% = £280.
• Dividends: the first £500 is covered. The remaining £2,500 is taxed at 8.75% = £218.75.

Worked example: a higher rate taxpayer

This is an illustrative example for 2025/26. Someone with a salary of £60,000 receives £2,000 of interest and £2,000 of dividends. All of this extra income falls in the higher rate band, so the Personal Savings Allowance is £500.

• Interest: £2,000 − £500 = £1,500 at 40% = £600.
• Dividends: £2,000 − £500 = £1,500 at 33.75% = £506.25.
• Total tax on the extra income: £600 + £506.25 = £1,106.25.

The same £4,000 of income kept in an ISA would have generated no tax at all. If you hold investments outside tax wrappers, Bed and ISA shows how existing holdings can be moved into one, and our ISA allowance guide sets out the annual limit.

When you need to report savings and dividends

Interest is often paid without tax deducted, so many people never see it on a payslip. If the amount is within your allowances and nothing else triggers a return, you may not need to report it. If your tax code does not already collect the tax due, or you file Self Assessment for another reason, interest and dividends go on the return. Check current HMRC guidance for the exact reporting rules, and keep bank interest certificates and dividend vouchers with your records for five years after the 31 January deadline. See also our guide to reporting dividends for shareholders.

Common mistakes with savings and dividend tax

• Forgetting that the Personal Savings Allowance falls to £500 for a higher rate taxpayer and disappears for additional rate taxpayers.
• Assuming the dividend allowance is added on top of the basic rate band, when it actually uses part of it.
• Ignoring interest on joint accounts, where each owner reports their share.
• Overlooking interest from peer-to-peer lending, bonds or foreign accounts.
• Not noticing that a small pay rise tips interest into a higher rate band, halving the allowance.

Checklist for savers and investors

1. Add up interest from every account for the tax year (6 April to 5 April).
2. Gather dividend vouchers or broker statements.
3. Work out your band, then your allowance.
4. Use your ISA allowance where practical.
5. Decide whether you need a Self Assessment return.

If your income is higher, our Self Assessment for high earners service can look after it. SATR offers a fixed fee from £199 + VAT, with qualified UK accountants filing online.

This is general information, not personal tax advice.

Sensible ways to reduce tax on savings and dividends

Use all your allowances every year

Allowances do not carry forward. The £20,000 ISA allowance, the £500 dividend allowance and the Personal Savings Allowance reset each 6 April. Reviewing your holdings in the weeks before 5 April is a straightforward habit, and it often costs nothing.

Think about who holds the asset

Transfers between spouses or civil partners who live together are generally free of tax at the point of transfer, so it can make sense for the partner with the lower income to hold interest-bearing savings, where this is a genuine gift. Each of you then has your own allowances and may fall into a lower tax band. It must be a real and outright transfer, so check current HMRC guidance or take advice before relying on it.

Consider how pensions fit in

Pension contributions can lower your taxable income and may bring you back into a band with a larger savings allowance. This works best as part of an overall plan, because the pension annual allowance of £60,000 and the tapered rules for very high earners both apply. Our guide on the Personal Allowance explains how income between £100,000 and £125,140 reduces that allowance, which makes the marginal rate on that slice of income particularly high.

None of these steps is a substitute for working out your own position, but together they show that careful planning, done within the rules, can reduce a bill legitimately.

Frequently asked questions

Will my bank tell HMRC about my interest?

Yes. Banks report interest paid to HMRC every year, so HMRC will know about it even if you do not report it yourself.

Do I pay tax on interest from an ISA?

No. Interest, dividends and gains inside an ISA are free of UK tax, and they do not use your allowances.

Is the dividend allowance the same for everyone?

Yes. The dividend allowance is £500 for all taxpayers, but the rate on dividends above it depends on your band.

How is interest on a joint account taxed?

Joint account interest is normally split between the owners, and each person’s share is tested against their own allowances. If you own the account 50/50, you each report half.

The Bottom Line

Basic-rate taxpayers can earn £1,000 of savings interest tax-free, higher-rate taxpayers £500 and additional-rate taxpayers none, while the first £500 of dividends is tax-free for everyone. Interest and dividends above the allowances are taxed at your marginal rate, so use ISAs and report anything HMRC needs to know.

SATR’s qualified UK accountants handle Self Assessment for savers and investors for a fixed fee from £199 + VAT. Order online now or see our Self Assessment for high earners service.