How do they calculate how much tax I have to pay on interest earned in a savings account?
Some savings accounts allow you to earn tax-free savings. Look out for ‘Tax-free’ in the savings accounts descriptions later in the guide as a clear indicator of where you can save without paying tax on your interest. If you don’t earn more than the tax-free allowance each year through a salary, any interest you earn (up to £5,435) will be tax free. However, you will only get your savings tax-free if you fill out form R85 and give this to your bank. This form will be your way of telling the bank that you earn below the tax-free allowance and therefore do not have to pay tax on interest earned from your savings. To work out how much tax you pay on your interest (if it is not done automatically – most of the time it is) you can use a simple formula. However, first, you need to look at which tax band your interest will be charged at by looking at the table above (if your salary is £21,000, for example, then the tax charged on your interest will be at 20%). Banks only pay interest at the b
