Savings, investments and tax in retirement
When you retire, the money you get from your pensions may be your main income. But if you also get money from savings or investments, that might affect how much Income Tax you pay.
All your income is added together
We don’t look at each bit of income on its own. We add all your taxable income together – like your State Pension, workplace or private pensions, interest you get from savings, or money from investments.
Most people are allowed a certain amount of income each year that they don’t pay tax on. This is called your tax-free Personal Allowance. The current standard tax-free Personal Allowance is £12,570 a year.
If your total income is more than £12,570, then you start paying tax on any money you receive above that amount.
You get tax-free interest on savings
You may be able to get some tax-free interest on your savings using what’s called an ‘allowance’. There are two saving allowances that you could benefit from – and some people can use both:
- Personal Savings Allowance
Get up to £1,000 in interest without paying tax on it (depending on which tax band you’re in). - the starting rate for savings
Get up to £5,000 in interest without paying tax on it, if the rest of your income (excluding any interest and dividends) is below £17,570. This allowance does get smaller based on your income, but we’ll explain more in the next section.
Understanding the Personal Savings Allowance
As well as a Personal Allowance, most people also get a Personal Savings Allowance. This is the amount of money you can get as interest from savings, tax-free.
Your Personal Savings Allowance depends on your income:
- if your income is between £12,571 and £50,270, you’ll pay Income Tax at the basic rate of 20%. This means your Personal Savings Allowance is £1,000 a year
- if your income is between £50,271 and £125,140, you’ll pay Income Tax at the higher rate of 40%. This means your Personal Savings Allowance is £500 a year
- if your income is more than £125,140, you don’t get a Personal Savings Allowance
If you live in Scotland things are a bit different. You can find the Scottish rates of Income Tax on GOV.UK.
Understanding the starting rate for savings
With the starting rate for savings, you can get up to £5,000 in interest without paying tax on it. However, you can only use this if your other income, excluding any interest and dividends, is below £17,570 – and the allowance does get smaller the more you make elsewhere, such as from any pensions or wages.
If your other income, excluding any interest and dividends, is £17,570 or more
You can’t get the starting rate for savings.
If your other income, excluding any interest and dividends, is less than £17,570
Your starting rate for savings is a maximum of £5,000. This goes down by £1 for every £1 of income that’s above your Personal Allowance.
Key thing to remember:
The current standard tax-free Personal Allowance is £12,570 a year.
Find out more about the starting rate for savings on GOV.UK.
Here are two examples.
David’s income from his State Pension and private pensions is £50,000 a year.
David also got £800 in savings interest that year.
This means David’s total income for the year is £50,800.
Because David’s income (excluding any savings interest and dividends) is more than £17,570, he doesn’t get the starting rate for savings.
David’s income falls within the higher Income Tax rate we mentioned earlier, so his Personal Savings Allowance is £500.
This means that £500 of David’s savings interest is tax-free.
The remaining £300 of David’s savings interest is taxable.
Christine’s income from her State Pension and private pensions is £13,500 a year.
Christine also got £3,200 in savings interest that year.
This means Christine’s total income for the year is £16,700.
Because Christine’s income (excluding any savings interest and dividends) is less than £17,570, she gets the starting rate for savings.
Christine’s income (excluding any savings interest and dividends) is £930 more than her Personal Allowance of £12,570. This reduces her starting rate for savings from £5,000 to £4,070.
Christine’s income falls within the basic Income Tax rate we mentioned earlier, so her Personal Savings Allowance is £1,000.
This means Christine can get up to £5,070 of savings interest tax-free (£4,070 from the starting rate for savings and £1,000 from her Personal Savings Allowance).
Because Christine received £3,200 in savings interest, all of this is tax-free.
You can find more information about tax on savings interest on GOV.UK.
What about income from investments in retirement?
You might own shares or investments that pay out something called a ‘dividend’. This is when a company makes a profit and then pays out a share of that profit to you.
Most people get a dividend allowance, which means you can earn £500 a year in dividends, tax-free. Any dividends above £500 will count towards your total yearly income, so they could push your income above your tax-free Personal Allowance.
Your dividend allowance is separate to your savings allowances. You can find out more about tax and allowances on dividends on GOV.UK.
Selling an investment and Capital Gains Tax
Capital Gains Tax is different to Income Tax. You’ll normally pay it if you sell something you own (an asset) for more than you paid for it. This is called making a ‘gain’.
You could be selling:
- a second home
- shares in a company (if not held in a stocks and shares ISA)
- valuable jewellery
- a crypto asset
You don’t pay Capital Gains Tax on everything you sell, and – just like your income and savings – you can make a certain amount of profit or ‘gains’, tax-free.
Here’s an example:
- you bought shares for £10,000
- you then sell them later for £25,000
- the gain you made is £15,000 – so you’ll only be taxed on this amount
You can read more about Capital Gains Tax on our Tax when you sell things in retirement page.
Interest and Individual Savings Accounts (ISAs)
Interest that you get from money within an ISA is tax-free no matter how much you make, so it doesn’t count towards your savings allowances. That’s the case whether the money comes from savings interest, dividends or investments.
Key thing to remember:
There’s a limit as to how much you can put into a cash ISA each year. In the 2026 to 2027 tax year, the limit is £20,000 and in the 2027 to 2028 tax year, the limit for a cash ISA will be £12,000 if you’re under 65 years old, or stay at £20,000 if you’re 65 or over.
You can find out more about ISAs on GOV.UK.
When to do a tax return
If your income from savings interest is more than £10,000 a year, or you receive more than £10,000 of dividends a year, you’ll need to fill out a Self Assessment tax return.
Don’t worry, there’s lots of support to help you fill it out. You can find all you need to know on our Self Assessment page.
You’ll need to include any profit you’ve made and any Capital Gains Tax you owe on your tax return too.
Savings and investments income less than £10,000
If your income from savings interest is less than £10,000 and you receive less than £10,000 in dividends, then you don’t need to send us a tax return, unless you already complete one for another reason.
If you receive dividends of more than £500, although you don’t need to do a tax return, you will still need to let us know. You can do this by logging in to your personal tax account on GOV.UK and going to ‘Check your Income Tax’ then ‘Tell us about a change’.
If you’re employed and get a salary – or you receive a workplace or private pension – we’ll try to automatically collect any tax you owe through your wages or pension before you’re paid. We’ll do this by changing your tax code, then send you a letter explaining what we’ve done.
If we can’t collect what you owe this way, or you owe more than £3,000, we’ll send you a Simple Assessment letter. A Simple Assessment is simply a letter from us that lets you know what tax you owe and how to pay. It’s a totally normal process and often happens if your savings income is quite high, or if you have income from investments that haven’t been taxed yet.
Find more information on Simple Assessment, including how to pay, on GOV.UK.
Let us know if something looks incorrect
If you think you should be paying tax on your savings income but haven’t heard from us by 31 March of the following tax year, you should let us know. You can also let us know if you expect to get less savings interest in the future. For example, you might have been saving for home improvements and you’ve now spent your savings doing these.
You can let us know about updates to your savings income by logging in to your personal tax account on GOV.UK.
Helpful tip:
Make sure you check any letters from us. If anything looks incorrect, let us know as soon as possible and we can sort it out. You’ll need to let us know within 60 days of receiving a Simple Assessment letter.
5 key things to remember
When you retire, how the interest on your savings and investments is taxed doesn’t change. It all adds to your total taxable income.
You have different tax-free allowances for savings interest, dividends and investments that can help reduce what tax you owe.
You need to let us know if you get more than £500 in dividends.
If you get more than £10,000 in income from savings interest or more than £10,000 in dividends a year, you’ll need to do a Self Assessment tax return.
If you get less than £10,000, we’ll try to collect what you owe by changing your tax code or sending you a Simple Assessment letter.
We know there’s a lot to take in, but don’t worry. Once you understand the basics, it all becomes a lot easier to manage.
Find out more on our How Simple Assessment works in retirement page and learn how to do a tax return on our Self Assessment page.
Get more information on tax on savings interest on GOV.UK.