What Is the Personal Savings Allowance? (UK 2025/26)

The Personal Savings Allowance (PSA) lets you earn a certain amount of interest on your savings each year without paying tax on it. The amount depends on your income tax band.

Allowance by Tax Band (2025/26)

• Basic-rate taxpayer (20%): £1,000 of savings interest tax-free
• Higher-rate taxpayer (40%): £500 of savings interest tax-free
• Additional-rate taxpayer (45%): No savings allowance at all

The PSA was introduced in April 2016 and the thresholds have not changed since.

How Tax on Savings Interest Works

Banks and building societies pay interest gross (without deducting tax). If your savings interest exceeds your PSA, HMRC will typically collect the tax owed by adjusting your PAYE tax code for the following year, so the extra tax is spread across your salary payments. Self-assessment filers report it on their tax return.

Starter Rate for Savings

There is also a separate £5,000 starting rate for savings. If your other income (salary, pension, etc.) is less than £17,570 (the personal allowance plus £5,000), you may be able to earn up to £5,000 of savings interest at 0% before the PSA even applies. This is particularly relevant for retirees or part-time workers with low earnings.

ISA Interest Is Separate

Interest earned inside a Cash ISA does not count against your PSA — it is completely tax-free with no limit.