If you earn £17,000 from your job and £1,000 from savings, you would pay 20% tax on £4,500 of income. The savings income would be tax-free, as £500 would be charged at the 0% starting rate for savings and £500 would be within the personal savings allowance. federal income tax, but not to state or local income tax any federal estate, gift, and excise taxes as well as any state estate or inheritance taxes. Using the money for higher education may keep you from paying federal income tax on your savings bond interest. You’re not eligible for the starting rate for savings if your other income is £17,500 or more. If your other income is less than £17,500. Your starting rate for savings is a maximum of £5,000.