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Updated on 6 April 2024

Starting rate for savings

The starting rate for savings is a 0% rate of tax which can apply for up to £5,000 of savings income. It only applies if your non-savings and non-dividend income is below a certain threshold.

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Introduction

The starting rate for savings applies to as much of the first £5,000 of taxable income (after deducting the personal allowance and blind person’s allowance, if eligible) that is savings income.

Note that dividend income is taxed after savings income. As a result, if you have dividend income it will not affect whether you are eligible for the starting rate for savings on your savings income.

The starting rate for savings will only apply to you if:

  • you have some savings income, and
  • your earned income and other non-savings, non-dividend income, before deducting the personal allowance (and blind person’s allowance, if eligible), is lower than a certain limit (see below).

For information on the types of income that are counted as savings income, see Tax on savings and investments.

The starting rate for savings does not need to be claimed – it applies automatically when your tax liability is calculated.

Upper and lower limits

The guide below just provides the general rule. This may not provide you with the correct result if you have additional tax allowances or expenses that you can claim. These figures also assume that you have not given up part of your personal allowance as part of a claim to the marriage allowance.

Not eligible for the blind person’s allowance

If you are not eligible for the blind person’s allowance and you have taxable earned and other non-savings, non-dividend income of between £12,570 and £17,570 in 2024/25, the savings rate will apply to at least part of your savings income (as in the example below). This threshold of £17,570 in 2024/25 is the £12,570 personal allowance plus the £5,000 starting rate for savings band.

Example – starting rate for savings

Suppose, in 2024/25, you are not eligible for the blind person’s allowance, you have pension income of £13,000 and savings income of £2,000, so you will have total income of £15,000.

This total income figure is less than £17,570, so you will be eligible for the starting rate for savings. We deduct the personal allowance (£12,570 in 2024/25) from the pension income, which leaves £430 left to be taxed at 20%.

The starting rate for savings applies to as much of the first £5,000 of taxed income that is savings income. In this case, the starting rate for savings could apply to up to £4,570 of savings income.

As the savings income is only £2,000, all of it will be ‘taxed’ at the starting rate for savings, which is 0%.

Eligible for the blind person’s allowance

If you are eligible for the blind person's allowance, the upper limit described above will be increased by the amount of the blind person’s allowance and you will get the savings rate if your taxable non-savings, non-dividend income in 2024/25 is between £12,570 and £20,640.

This threshold of £20,640 in 2024/25 is the £12,570 personal allowance plus £3,070 blind person’s allowance plus £5,000 starting rate for savings band.

Taxable income above the upper limits

If your taxable earned and other non-savings, non-dividend income is above the upper limit described above of £17,570 for 2024/25 (or £20,640 if you are eligible for the blind person’s allowance), the starting rate for savings will not apply to your taxable savings income. You will still be able to deduct your personal savings allowance, if applicable (not available for additional rate taxpayers), and will then pay tax at the savings rates of tax on the remainder, depending on which tax band it falls in.

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