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.
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