UK Budget 2026: What the Savings Tax Rise Means for You

The Autumn Budget landed on 28 October, and if you keep cash in savings, Chancellor John Healey had three things to tell you — two of them costly. Tax on savings interest is going up, banks are getting a tax hike of their own, and experts warn savers could end up footing the bill for both.

But there was one clear win: the threatened cut to the cash ISA allowance was scrapped, so you can still shelter £20,000 a year from tax. Here is what changed, what it will cost you, and the moves worth making before the new rules bite on 6 April 2027.

1. Tax on savings interest rises from April 2027

The headline change: income tax on savings interest rises by four percentage points from 6 April 2027 — basic-rate taxpayers pay 24% above their allowance, higher-rate 44%, additional-rate 49%.

Tax band	Rate today	Rate from 6 April 2027	Tax-free allowance
Basic rate	20%	24%	£1,000 of interest
Higher rate	40%	44%	£500 of interest
Additional rate	45%	49%	£0

The Personal Savings Allowance itself is not changing — you still get £1,000 (basic rate) or £500 (higher rate) of interest tax-free each year. Only interest above that gets taxed, at the new higher rates.

What does that cost in practice? A basic-rate taxpayer earning £1,500 a year in savings interest outside an ISA pays £100 of tax today on the £500 above their allowance. From April 2027, that becomes £120 — an extra £20 for every £500 of interest over the allowance.

“The horrible hike in the savings tax in April 2027 is likely to persuade more savers to move from standard savings accounts into a cash ISA.” — Sarah Coles, head of personal finance at AJ Bell

2. Banks face a tax rise — and savers could pay for it

The corporation tax surcharge on banks doubles from 3% to 6% for 15 months, running from 1 January 2027 to 31 March 2028 — a move the Treasury expects to raise around £1.5 billion.

Banks have not announced plans to cut savings rates in response. But experts warn the extra cost could be passed on to customers through lower returns on deposits — the familiar “rockets and feathers” pattern, where banks raise borrowing costs quickly and lift savings rates slowly.

If you have been meaning to lock in a fixed rate, today’s top deals may not hang around. Moneyfacts’ latest roundup (29 October) shows two-year fixes up to 5.26% AER and one-year fixes at 5.15% — but rate boards move quickly once banks start repricing.

3. The good news: the £20,000 cash ISA survives

Before the Budget, the Treasury had planned to cut the cash ISA allowance from £20,000 to £12,000 for under-65s from next April. That plan is now scrapped — every saver keeps the full £20,000 annual allowance, and interest inside an ISA stays completely tax-free.

With savings tax rising outside the wrapper, the ISA becomes the obvious first home for any cash you do not need immediate access to. Also announced: a new First Time Buyer ISA will replace the Lifetime ISA from April 2029, and the Lifetime ISA withdrawal charge for purchases above the property price cap falls from 25% to 20%.

What to do before 6 April 2027

1. Work out whether you pay savings tax at all. If your total interest this tax year is under £1,000 (basic-rate taxpayer) or £500 (higher-rate), the rise does not touch you — yet. Check your statements: with easy-access rates near 5%, around £20,000 in a taxable account is enough to breach the basic-rate allowance.
2. Prioritise your ISA. Cash ISAs pay competitive rates right now, and the tax shelter just became more valuable. Fund the 2026/27 £20,000 allowance with money currently earning taxable interest.
3. Consider locking a fixed rate. If you hold cash you will not need for a year or more — a house-deposit timeline, say — today’s top fixes (5.15% to 5.37% depending on term) protect you against any post-Budget rate cuts.
4. Don’t break a fixed bond for a marginal gain. Early-exit penalties usually wipe out the benefit of switching for an extra 0.1 or 0.2 percentage points. Run the numbers before moving.
5. Keep your emergency fund accessible. Tax efficiency matters, but not at the cost of liquidity. Keep three to six months of expenses in an instant-access account (ideally an easy-access cash ISA), and only fix money beyond that.

Frequently asked questions

Will banks really cut savings rates because of the bank tax?

Nothing is confirmed — the surcharge does not start until January 2027. But banks have passed costs through before, and analysts flagged this as a risk within hours of the Budget. If you were planning to fix, do not assume today’s top rates will still be there in spring.

Do I need to do anything before April 2027?

The tax rise only applies from 6 April 2027, so interest earned before then is taxed under today’s rates. The practical move is using your 2026/27 ISA allowance now, while top fixed rates are still on the table.

Does the savings tax rise affect money inside an ISA?

No. Interest and gains inside any ISA remain completely tax-free regardless of the new rates — which is exactly why the £20,000 allowance surviving the Budget matters so much.

What about Premium Bonds?

Premium Bond prizes remain tax-free and sit outside the savings-tax rules entirely — the Budget did not change that. They suit money you would otherwise keep in a low-rate account, not money chasing a yield.

I’m a US reader — does any of this apply to me?

No, this is UK-only. But the same principle travels: when tax rules on interest change, tax-advantaged accounts become relatively more valuable — for US savers, that includes today’s 5.51% I Bonds.

The Budget’s message to savers is mixed but clear: the taxman is taking a bigger slice of interest from April 2027, and the safest place for your cash is inside the ISA wrapper. Your next step is a 15-minute check — add up this year’s savings interest, see whether it clears your allowance, and if it does, move the excess into a cash ISA before the new rates arrive.