HMRC raises tax on joint savings interest; advisers outline how couples can manage
Frozen thresholds push more savers into the tax net; advisers explain how joint accounts are taxed and what couples can do to maximise allowances
Tax on savings interest in joint accounts is rising as frozen thresholds redirect more savers into the tax net. HM Revenue & Customs projects that about 2.64 million people will pay tax on savings interest in the 2025-26 financial year, a sharp rise from earlier years, with roughly £2.5 billion of that burden falling on pensioners as thresholds remain fixed. The shift highlights how couples relying on savings income, including those with NHS pensions and state pensions, may need to rethink ownership and account planning to minimise tax while keeping funds accessible.
Guidance from financial specialists who spoke with This is Money emphasises a straightforward default for joint accounts: HMRC usually splits the interest 50/50 between the two account holders, with each person taxed on half of the total interest at their own marginal rate. That means the tax impact hinges on each spouse’s income tax band and their Personal Savings Allowance. Basic-rate taxpayers have a £1,000 allowance for savings interest, while higher-rate taxpayers have a £500 allowance. In situations where one partner has significant pension income, the higher earner’s share of interest may be taxed at 20% or 40% once PSA is used, depending on whether pension income is counted as net or gross and on the amount of interest earned. The lower-earning spouse could benefit from the starting-rate for savings, which can shelter up to £5,000 of interest per year if other income remains low, and this can be maintained into future years depending on state pension levels. Banks report interest directly to HMRC, so PAYE taxpayers typically do not need to file a separate tax return to cover savings income. If savers wish to keep money in cash, cash ISAs are a simple way to avoid tax on interest entirely, with a £20,000 annual allowance per person into cash ISAs.
A second viewpoint comes from Shaun Moore, a tax and financial planning expert at Quilter, who notes that HMRC generally assumes joint savings are split equally, and each partner is taxed on half the total interest at their own rate. If the actual entitlement deviates from a 50/50 split—such as one spouse receiving 75% of the interest—tax could reflect that real share, provided the couple can supply supporting records. In a scenario where one spouse earns £42,800 a year from an NHS pension and will soon receive the state pension, the higher earner’s share could push them into the higher-rate band for interest. Meanwhile, the other spouse, with no current income, could utilise the starting-rate for savings and their PSA to shelter a larger portion of interest. The advisers caution that, while transferring the savings into the lower-earning spouse’s name can be advantageous, such moves require formal agreement and clear evidence of entitlement.
For couples facing future changes in income, these considerations are dynamic. In practice, the decision to reallocate ownership should be documented and reviewed periodically, particularly if NHS and state pensions evolve in amount or timing. An alternative approach for some is to hold more savings in the name of the lower-earning spouse, if both parties are comfortable with the arrangement, to optimise the interaction of PSA, starting-rate limits, and the higher-rate tax band. If ownership remains in joint names, the need for careful record-keeping persists to reflect actual entitlement in case the tax treatment needs adjustment.
In the couple scenario described here, the presence of a substantial NHS pension alongside a future state pension and a partner with no current income creates a tension between the higher-earner’s potential to fall into the higher rate on interest and the lower earner’s ability to tap into the starting-rate and PSA. The starting-rate for savings, currently up to £5,000 of interest shielded for those with low other income, can be particularly valuable for the non-working spouse early on. However, the actual outcome depends on total taxable income, the precise amount of interest earned, and any changes to state pension income over time. The guidance from advisers also stresses that, in addition to using the starting-rate and PSA, savers should consider ISA wrappers as a way to shelter tax on interest while preserving access to funds. Each person can contribute up to £20,000 per year into a cash ISA, and any interest earned inside is tax-free.
Other strategies include allocating tax-efficient ownership to the lower-tax partner, but this requires consent and careful documentation. For savers who want to keep funds fully liquid and tax-free on interest, ISAs provide a straightforward solution, but couples should balance the tax benefits against access needs and potential future changes in income or pension entitlements. The broader context is that the freeze on thresholds is expanding the number of households subject to savings tax, underscoring the importance of proactive financial planning.
HMRC typically collects tax on savings interest automatically through the PAYE system, with banks reporting the interest to HMRC. The interaction between pension income and savings tax can be complex, and advisers emphasize that automation should not replace careful planning. This is Money highlights the scale of the shift, noting that about 2.64 million people will pay tax on savings in 2025-26, with pensioners contributing a large portion due to frozen thresholds. As the tax environment evolves, couples are advised to review savings structures regularly and consider how best to use PSA, starting-rate allowances, and ISA wrappers to manage tax efficiently while maintaining access to funds.
In summary, the move to higher savings tax for joint accounts reflects a broader tightening of the tax regime, driven by threshold freezes and the growth of pensioner incomes. For couples navigating NHS pensions, state pensions, and savings, a thoughtful approach to ownership, allowances, and tax-efficient wrappers can make a meaningful difference in net income from savings over time. Advisers emphasise that decisions should be evidence-based, documented, and revisited as circumstances change, rather than being made as a one-off adjustment.
The evolving landscape underscores the need for savers to stay informed about how HMRC taxes interest on joint accounts and to explore alternatives such as ISAs to optimise tax outcomes while preserving access to savings. With millions affected and thresholds frozen, careful planning now can help households mitigate the impact of savings tax in the years ahead.
