The starting rate for savings: a worked example

The £5,000 starting rate for savings is a 0 per cent band on savings income that shrinks by £1 for every £1 of other income above the personal allowance, so the coupon income it leaves untaxed depends on the rest of a reader's income — and a single worked example makes the pound-for-pound reduction plain.

The band, and how it shrinks

The starting rate for savings lets a UK taxpayer receive up to £5,000 of savings income at 0 per cent. Checked against GOV.UK and HMRC for the 2025/26 tax year, the £5,000 is reduced by £1 for every £1 of other taxable income a person has above the standard personal allowance of £12,570, and the band is fully withdrawn once other taxable income reaches £17,570.

A gilt's coupon is savings income paid gross, so it is the kind of income the band shelters. The size of the band that is actually available therefore depends on everything else in the year: the higher the other income above the personal allowance, the smaller the slice of coupon income that can sit at 0 per cent.

The reduction, pound for pound

The table shows the band shrinking as other taxable income rises. Each row is the arithmetic the rule describes: subtract the personal allowance, take the result from £5,000. The figures are for the 2025/26 tax year and come from GOV.UK and HMRC.

The last row is the ceiling: at £17,570 of other income the whole £5,000 has been withdrawn, and savings income above the personal savings allowance is taxed at the ordinary savings rate. A reader whose other income sits between the personal allowance and that ceiling has some starting-rate band left, and the table shows how much.

A worked example

Take a reader with a pension of £14,000 and gilt coupon income of £3,000 in the 2025/26 tax year. Every input is stated and the arithmetic is illustrative; the tax-year figures come from GOV.UK and HMRC.

1. The personal allowance of £12,570 covers the first £12,570 of the pension.
2. The pension exceeds the personal allowance by £1,430, and that slice is taxed at the basic rate.
3. The starting rate for savings is £5,000 less £1,430, leaving £3,570 available at 0 per cent.
4. The gilt coupon of £3,000 is savings income and falls entirely within the £3,570 band, so it is taxed at 0 per cent.
5. The net coupon income is therefore the full £3,000, with no tax on the coupon at all.

The £3,000 of coupon income is left untaxed because the band still covered it after the pound-for-pound reduction. Had the other income been £16,000, the band would have shrunk to £1,570, and only the first £1,570 of coupon income would have sat at 0 per cent; had it been £17,570 or more, the band would have gone entirely and the coupon would have met the personal savings allowance and then the ordinary savings rate.

A second reader with a pension of £16,000 shows the steeper reduction. The pension exceeds the personal allowance by £3,430, so the starting rate for savings falls to £1,570. If that reader has £1,500 of gilt coupon income, it falls entirely within the £1,570 band and is taxed at 0 per cent, keeping the full £1,500. Had the coupon been £2,000, only the first £1,570 would have sat at 0 per cent, and the remaining £430 would have met the personal savings allowance before any 20 per cent rate; with a £1,000 allowance at the basic rate, that £430 is sheltered too, so the coupon would still be untaxed. It takes coupon income above roughly £2,570 in this case — the £1,570 band plus the £1,000 allowance — before the 20 per cent rate reaches any of it.

Why the site's columns assume the band is gone

GiltIQ does not ask a reader for their other income, so it cannot know how much starting-rate band is left. The post-tax yield page and its net income (20%) and net redemption yield columns therefore model a taxed band on the stated assumption that the starting rate for savings is fully withdrawn. That is the cautious treatment — it cannot understate the tax — and it is stated rather than left implied.

For a reader whose other income is low enough to leave some band, that assumption is too pessimistic, and the worked example above shows by how much. The coupon income a low-other-income reader actually keeps can be higher than the net income column suggests, because the starting-rate band and the personal savings allowance sit in front of the 20 per cent rate rather than behind it.

This is the one place in the tax picture where GiltIQ knowingly states a cautious figure rather than a neutral one. It does so because the alternative — guessing a reader's other income — would be worse, and because the cautious direction cannot overstate the tax a reader might owe. A reader who supplies their own other income turns the worked example above into their own figure, and the band they actually have can be larger than the site assumes.

Where to see your own figures

The taxable income report sums a portfolio's coupon interest for a chosen UK tax year, which is the figure the band is measured against. The post-tax yield page shows what a gilt's coupon keeps at a range of constant rates once the assumptions are fixed. Neither knows a reader's other income, so the starting-rate band is the piece a reader supplies from their own circumstances.

Background, not advice

This article works through how the starting rate for savings reduces with other income; it is general background, not investment, tax or legal advice for any reader's circumstances, and it is not a substitute for professional tax advice. The personal allowance, the £5,000 band and the £17,570 ceiling are for the 2025/26 UK tax year and come from GOV.UK and HMRC; the worked example is illustrative and states its inputs. GOV.UK and HMRC are the primary sources for a real rate, allowance or threshold, which change from year to year.