Personal Savings Allowance Explained

The Personal Savings Allowance is the amount of interest you can earn each tax year before any income tax is due on it. It was introduced in April 2016 and applies to interest from most sources — bank and building society accounts, savings accounts, most corporate bonds, and interest distributions from funds. It does not apply to interest earned inside an ISA, because ISA interest is already tax-free and sits outside the allowance entirely.

The size of your allowance depends on the highest rate of income tax you pay. Since 2016, banks and building societies pay interest without deducting tax at source, so any tax due is normally collected by HMRC through your tax code or, if you complete one, your Self Assessment tax return.

For the 2026/27 tax year, the Personal Savings Allowance is:

• £1,000 for basic-rate taxpayers (taxable income between £12,571 and £50,270)
• £500 for higher-rate taxpayers (taxable income between £50,271 and £125,140)
• £0 for additional-rate taxpayers (taxable income above £125,140)

These figures are unchanged from recent years. Because the allowance falls as your income rises, a pay rise, bonus or pension withdrawal that moves you from one tax band into the next can reduce your Personal Savings Allowance at the same time. The allowance is per person, so a couple can each use their own.

Separately from the Personal Savings Allowance, there is a starting rate for savings, which can allow up to £5,000 of savings interest to be taxed at 0%. This is aimed at people with low non-savings income.

The starting rate is reduced by £1 for every £1 of non-savings income (such as wages or pension income) above your Personal Allowance of £12,570. This means that once your non-savings income reaches £17,570 or more, the starting rate for savings is no longer available.

It is most useful for those with modest earned or pension income but larger savings — for example, someone in early retirement living partly on savings interest before their pensions start. Where it applies, the starting rate sits on top of both the Personal Allowance and the Personal Savings Allowance.

Once your interest exceeds your Personal Savings Allowance (and any starting rate that applies), the excess is taxed at your normal income tax rate. For 2026/27 that means 20% for basic-rate taxpayers, 40% for higher-rate taxpayers and 45% for additional-rate taxpayers. Savings interest is added to your other income to work out how much falls into each band, so a large amount of interest could itself push some of your income into a higher band.

For most people with PAYE income, HMRC adjusts your tax code to collect any tax owed on savings interest automatically, based on information reported by banks. If you complete a Self Assessment return, you report the interest there instead.

The Personal Savings Allowance and the starting rate for savings are unchanged for 2026/27. However, the Government has announced that the tax rates applied to savings income will rise by two percentage points from April 2027 — the basic rate on savings moving from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%.

These changes do not affect the 2026/27 tax year, but they are worth bearing in mind when planning ahead, because they make tax-free wrappers such as ISAs relatively more valuable in future.

Interest earned inside a Cash ISA or a Stocks and Shares ISA does not count towards your Personal Savings Allowance, because it is already tax-free. For the 2026/27 tax year the overall ISA allowance is £20,000.

For savers who regularly use up their Personal Savings Allowance, moving some cash into an ISA can shelter interest that would otherwise be taxed — particularly relevant ahead of the savings tax rate rises due in April 2027. The right balance between ordinary savings and ISAs depends on your wider circumstances, including how much you hold in cash and your tax band.