Tax on £5,000 Savings

£5,000 in savings at 4.5% earns £225 interest per year. Tax payable: £0 (basic rate), £0 (higher rate), £101 (additional rate).

With £5,000 in savings at 4.5%, your annual interest is £225. This is within the Personal Savings Allowance for both basic rate (£1,000) and higher rate (£500) taxpayers — no tax to pay. However, additional rate taxpayers have no PSA and would pay £101.

Tax on £5,000 at different interest rates

Rate	Annual interest	Tax (basic)	Tax (higher)	Tax (additional)
3.0%	£150	£0	£0	£68
4.0%	£200	£0	£0	£90
4.5%	£225	£0	£0	£101
5.0%	£250	£0	£0	£113
6.0%	£300	£0	£0	£135

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 £5,000 savings

The simplest way to eliminate savings tax is to hold your £5,000 in a Cash ISA. All interest earned within an ISA is tax-free, and £5,000 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 £5,000 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 £5,000 is below the basic rate threshold of £22,222, so basic rate taxpayers pay no tax at 4.5%.

Tax on other savings amounts

• £7,000: £315 interest, no tax (basic rate)
• £10,000: £450 interest, no tax (basic rate)

Frequently asked questions

Do I pay tax on £5,000 in savings?

At 4.5%, £5,000 earns £225 interest — within the £1,000 PSA for basic rate taxpayers, so no tax. Higher rate taxpayers (£500 PSA) pay £0.

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 £5,000 savings in an ISA?

Yes, if possible. £5,000 fits within the £20,000 annual ISA allowance. All interest in an ISA is tax-free, regardless of your tax band.