TL;DR
In 2026/27, basic-rate taxpayers can earn 1,000 pounds of savings interest tax-free under the Personal Savings Allowance. Higher-rate taxpayers get 500 pounds. Additional-rate taxpayers get nothing. ISA interest is always tax-free and does not count against the allowance. With rates still elevated, many more savers than usual are exceeding their allowance and facing an unexpected tax bill.
Last reviewed: 23 June 2026
Key Facts: Tax on Savings Interest 2026/27
|
Personal Savings Allowance (PSA) by Taxpayer Band (2026/27)
| Income Tax Band | Income Range | PSA (Annual Tax-Free Interest) |
|---|---|---|
| Non-taxpayer | Under 12,570 pounds | Up to 6,000 pounds (personal allowance + starting rate) |
| Basic rate (20%) | 12,571 to 50,270 pounds | 1,000 pounds |
| Higher rate (40%) | 50,271 to 125,140 pounds | 500 pounds |
| Additional rate (45%) | Over 125,140 pounds | 0 pounds - all interest taxable |
Source: HMRC - Tax on savings interest (GOV.UK). PSA unchanged since 2016.
How the Personal Savings Allowance works
The Personal Savings Allowance (PSA) was introduced in April 2016 and gives UK taxpayers an annual amount of savings interest that is free of income tax. The allowance is 1,000 pounds for basic-rate taxpayers and 500 pounds for higher-rate taxpayers. Additional-rate taxpayers receive no allowance and pay income tax on all savings interest.
The PSA applies to interest from bank and building society accounts, peer-to-peer lending, savings bonds, and most other savings products. It does not apply to dividends from shares (which have a separate 500 pound dividend allowance) or to interest inside an ISA (which is always tax-free regardless of the PSA).
The Starting Rate for Savings
Separately from the PSA, there is a Starting Rate for Savings of up to 5,000 pounds taxed at 0%. This is available to anyone whose non-savings income (wages, pension, rental) is below 17,570 pounds. The starting rate band reduces by 1 pound for every pound of non-savings income above the Personal Allowance of 12,570 pounds.
For someone with no earned income at all, the combined effect of the Personal Allowance (12,570 pounds), the Starting Rate band (5,000 pounds) and the PSA (1,000 pounds) means up to 18,570 pounds of savings interest can be received entirely tax-free.
Tax-Free Savings Interest: How the Layers Stack
| Layer | Amount | Who Benefits |
|---|---|---|
| Personal Allowance | Up to 12,570 pounds | Anyone - applied to all income types first |
| Starting Rate for Savings (0%) | Up to 5,000 pounds | Those with non-savings income under 17,570 pounds |
| Personal Savings Allowance | 1,000 or 500 pounds | Basic and higher rate taxpayers |
| ISA (inside wrapper) | Unlimited | All UK residents with an ISA |
Layers are cumulative for eligible savers. ISA interest is always separate and tax-free. Source: HMRC.
How HMRC collects tax on savings interest
Banks and building societies report interest paid to HMRC automatically at the end of each tax year. HMRC then compares this to the individual tax position. For employees and pensioners, any tax owed above the PSA is normally collected by adjusting the PAYE tax code the following year - the tax is taken from wages or pension automatically.
Self-employed individuals and those who file Self Assessment returns must declare savings interest on their return. Anyone whose savings and investment income exceeds 10,000 pounds per year must register for Self Assessment even if they have no other reason to file a return.
Why more savers are exceeding the PSA in 2026
The PSA has not changed since it was introduced in 2016, when the Bank of England base rate was near zero and savings rates were negligible. With the base rate remaining elevated, easy-access savings accounts are paying 4% to 5% in 2026. At 5%, a basic-rate taxpayer needs only 20,000 pounds in savings to use their full 1,000 pound PSA. A higher-rate taxpayer reaches their 500 pound limit with just 10,000 pounds saved.
Frozen income tax thresholds mean more savers have been pushed into the higher-rate band through fiscal drag, further reducing their PSA from 1,000 to 500 pounds without any increase in their underlying allowance.
How much savings interest is tax-free in 2026/27?
Basic-rate taxpayers can earn 1,000 pounds of savings interest tax-free per year. Higher-rate taxpayers get 500 pounds. Additional-rate taxpayers get no allowance. This is separate from ISA interest, which is always tax-free with no cap.
Do I need to declare savings interest to HMRC?
Usually no. Banks report interest directly to HMRC. If tax is owed above the PSA, HMRC adjusts the PAYE tax code to collect it automatically. Self Assessment filers must include interest on their return. Anyone with savings and investment income over 10,000 pounds must register for Self Assessment.
Does ISA interest count toward the Personal Savings Allowance?
No. ISA interest is completely tax-free and does not count toward the PSA at all. The PSA applies to interest earned in ordinary savings accounts outside an ISA.
What is the Starting Rate for Savings?
A 0% tax band of up to 5,000 pounds on savings interest, available to those whose non-savings income (wages, pension) is below 17,570 pounds. It reduces by 1 pound for every pound of non-savings income above the 12,570 pound Personal Allowance.
What happens if I exceed the Personal Savings Allowance?
HMRC normally collects the tax by reducing the PAYE tax code, so less net pay is received the following year. If there is no PAYE income, HMRC will write requesting a Self Assessment return or payment directly. Interest on the overpayment may also apply.
Will dividend income affect my Personal Savings Allowance?
No. Dividends are not savings interest and are not covered by the PSA. Dividends have a separate 500 pound dividend allowance for 2026/27. However, dividend income does count toward total income when determining whether savings interest falls in the basic or higher rate band.
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