Tax on £20,000 Savings

£20,000 in savings at 4.5% earns £900 interest per year. Tax payable: £0 (basic rate), £160 (higher rate), £405 (additional rate).

With £20,000 in savings at 4.5%, your annual interest is £900. Basic rate taxpayers pay no tax (interest is within the £1,000 PSA). Higher rate taxpayers pay £160 in tax (PSA is only £500, and the excess is taxed at 40%). Additional rate taxpayers pay £405 (no PSA at all).

Tax on £20,000 at different interest rates

Rate	Annual interest	Tax (basic)	Tax (higher)	Tax (additional)
3.0%	£600	£0	£40	£270
4.0%	£800	£0	£120	£360
4.5%	£900	£0	£160	£405
5.0%	£1,000	£0	£200	£450
6.0%	£1,200	£40	£280	£540

The Personal Savings Allowance is £1,000 (basic), £500 (higher), or £0 (additional). Interest above the PSA is taxed at your marginal rate.

How to avoid tax on £20,000 savings

The simplest way to eliminate savings tax is to hold your £20,000 in a Cash ISA. All interest earned within an ISA is tax-free, and £20,000 fits within the £20,000 annual ISA allowance. You can transfer existing savings into an ISA without closing your account.

Other strategies to reduce tax on savings interest:

• Use your ISA allowance — £20,000 per year, completely tax-free
• Spread between partners — Each person has their own PSA. If one partner is basic rate (£1,000 PSA) and the other is higher rate (£500 PSA), hold more savings in the basic rate partner's name
• Premium Bonds — Returns are tax-free (prizes instead of interest). Average "prize rate" around 4%
• NS&I products — Some National Savings products offer tax-free returns

See ISA returns on £20,000 for a detailed comparison.

At what savings level do you start paying tax?

At 4.5%, the PSA breakeven points are:

• Basic rate (£1,000 PSA): Tax-free on savings up to £22,222
• Higher rate (£500 PSA): Tax-free on savings up to £11,111
• Additional rate (£0 PSA): Tax on all savings interest from £1

Your £20,000 is below the basic rate threshold of £22,222, so basic rate taxpayers pay no tax at 4.5%.

Tax on other savings amounts

• £15,000: £675 interest, no tax (basic rate)
• £18,000: £810 interest, no tax (basic rate)
• £22,000: £990 interest, no tax (basic rate)
• £25,000: £1,125 interest, £25 tax (basic rate)

Frequently asked questions

Do I pay tax on £20,000 in savings?

At 4.5%, £20,000 earns £900 interest — within the £1,000 PSA for basic rate taxpayers, so no tax. Higher rate taxpayers (£500 PSA) pay £160.

What is the Personal Savings Allowance?

The PSA lets you earn savings interest tax-free each year: £1,000 for basic rate taxpayers, £500 for higher rate, and £0 for additional rate. Interest above the PSA is taxed at your marginal rate.

Should I put my £20,000 savings in an ISA?

Yes, if possible. £20,000 fits within the £20,000 annual ISA allowance. All interest in an ISA is tax-free, regardless of your tax band.