The starting rate for savings is a separate £5,000 band where savings interest is taxed at 0%. It's not an allowance you can claim freely — it's tapered away £1 for every £1 of non-savings income above the £12,570 Personal Allowance. The band is fully available if non-savings income is below £12,570; fully gone if non-savings income exceeds £17,570. Stacks with the £1,000 PSA, giving low-earners up to £6,000 of tax-free savings interest on top of the £12,570 Personal Allowance.
How the taper works
| Non-savings income | Starting rate band available |
|---|---|
| £12,570 or below | Full £5,000 |
| £13,570 | £4,000 |
| £14,570 | £3,000 |
| £15,570 | £2,000 |
| £16,570 | £1,000 |
| £17,570 or above | £0 |
"Non-savings income" means earnings, pension income, rental income, and self-employment profit — but NOT savings interest or dividends. So a £15,000 employment salary uses £2,430 of the band (the slice between £12,570 and £15,000), leaving £2,570 of starting rate band available.
Worked example — early retiree
Age 60, pension income £10,000, savings interest £6,000
| Non-savings income (pension) | £10,000 |
| Less Personal Allowance | £0 used (pension below £12,570) |
| Starting rate band (full, untapered) | £5,000 |
| PSA (basic rate, total income still below £50k) | £1,000 |
| Total tax-free savings interest | £6,000 |
| Tax on savings interest | £0 |
| Total tax on £16,000 income | £0 |
This is one of the most tax-efficient income mixes in the UK system — retirees with modest pensions can structure substantial savings interest entirely tax-free using the starting rate band + PSA + Personal Allowance.
Who benefits most
- Early retirees drawing down ISAs and modest pension income.
- Career-break individuals living off savings between jobs.
- Stay-at-home parents with their own savings.
- Low-earning self-employed with significant capital from earlier life.
- Inheritors who have received substantial cash and are between jobs.
The starting rate band is essentially invisible for higher earners — once non-savings income crosses £17,570 (basically the level of a part-time job at the lowest minimum wage), it's gone.
Planning levers
- Time when you draw pension. Drawing pension income just below £17,570/year preserves part of the starting rate band for savings.
- Use ISA wrapper for large amounts. Above £5,000–£6,000 of interest, ISA wins regardless of starting rate availability.
- Joint savings. Married couples can split deposits 50/50 — each gets their own starting rate band if eligible.
- Spousal transfer of assets. CGT-exempt transfer of savings to a lower-earning spouse can shift interest income into their tax-free starting rate band.
Common mistakes
- Confusing starting rate band with savings allowance. They're separate. The PSA is £1,000/£500/£0; the starting rate band is up to £5,000 for low earners only.
- Forgetting it tapers. Earn £1 above £12,570 of non-savings income and you lose £1 of starting rate band.
- Assuming dividends count. Dividends are taxed separately and don't count as "non-savings income" for this taper.
- Not claiming it on Self Assessment. Most HMRC self-assessment software applies the starting rate automatically, but check the calculation.
Sources and methodology
The starting rate for savings is in sections 12 and 12A of the Income Tax Act 2007. See HMRC's savings interest guidance. For personalised analysis, see the savings interest calculator. The methodology page documents sources.
Related guides
How the £5,000 band stacks with the Personal Allowance and PSA
The starting rate for savings is one of three separate 0% layers that savings interest can pass through before any tax is due. Understanding the order they apply in is what makes the numbers click. HMRC taxes non-savings income (earnings, pensions, profits, rent) first, then savings interest, then dividends — and savings interest is set against each available band in turn:
- Personal Allowance — £12,570 at 0%. If your non-savings income doesn't use it all, the unused slice covers savings interest first.
- Starting rate for savings — up to £5,000 at 0%. Available next, but reduced £1-for-£1 by every pound of non-savings income above £12,570 (gone once that income reaches £17,570).
- Personal Savings Allowance — £1,000 (basic rate) / £500 (higher rate) / £0 (additional rate) at 0%. Sits on top of the starting rate band.
For a low earner the headline combination is £5,000 + £1,000 = up to £6,000 of savings interest tax-free, on top of the £12,570 Personal Allowance. And for someone whose income is entirely savings interest — no wage or pension at all — all three layers stack: £12,570 + £5,000 + £1,000 = £18,570 of interest with no tax due. That is the maximum the system allows, and it explains why a saver living off cash interest between jobs, or in an early-retirement gap year, can run surprisingly large balances tax-free.
Worked example — a low earner with a part-time wage
The early-retiree example above enjoys the full band because their non-savings income is below £12,570. Most working people don't — the taper takes a bite the moment a wage or pension crosses the Personal Allowance. Take someone with a £15,000 part-time salary and £4,000 of savings interest.
£15,000 salary, £4,000 savings interest
| Non-savings income (salary) | £15,000 |
| Salary above the £12,570 Personal Allowance | £2,430 |
| Starting rate band: £5,000 − £2,430 | £2,570 |
| Personal Savings Allowance (basic rate) | £1,000 |
| Tax-free savings interest (£2,570 + £1,000) | £3,570 |
| Interest taxed at 20%: £4,000 − £3,570 | £430 |
| Tax on the savings interest | £86 |
The £2,430 of salary above the Personal Allowance shrinks the starting rate band from £5,000 to £2,570, but the £1,000 PSA is untouched — so £3,570 of the interest is still tax-free, and only the final £430 is taxed, costing £86. (The salary itself is taxed normally: £2,430 above the allowance at 20% = £486.) Push the salary up to £17,570 and the starting rate band would vanish entirely, leaving only the £1,000 PSA to shelter the interest. This is the practical reality of the band for most people: it tapers fast, so it rewards keeping non-savings income low — through pension contributions, part-time hours, or timing a career break — far more than it rewards high earners, for whom it is simply unavailable.
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