Earning interest on your savings does not automatically mean you will have a tax bill.
For the 2026/27 tax year, many UK savers can receive some savings interest without paying Income Tax because of the Personal Savings Allowance, the starting rate for savings and, where available, their Personal Allowance.
The amount of tax-free savings interest available to you depends on your other income and the Income Tax band you fall into.
For 2026/27, the Personal Savings Allowance is:
| Income Tax position | Personal Savings Allowance |
|---|---|
| Basic-rate taxpayer | £1,000 |
| Higher-rate taxpayer | £500 |
| Additional-rate taxpayer | £0 |
The current tax year runs from 6 April 2026 to 5 April 2027. HMRC confirms that the Personal Savings Allowance remains £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers for 2026/27. Additional-rate taxpayers do not receive a Personal Savings Allowance.
This guide explains how the Personal Savings Allowance works, how the starting rate for savings can provide additional tax-free interest, what types of interest count, how HMRC collects tax and what is changing from April 2027.
Important: This guide provides general information about UK tax rules and is not personal tax advice. Savings tax calculations can change depending on your total income and individual circumstances.
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) allows many taxpayers to receive a certain amount of savings income each tax year at a 0% rate of Income Tax.
It was introduced in April 2016 and applies to qualifying savings income such as interest from ordinary bank and building society accounts.
The amount available depends on the Income Tax band you fall into after your savings interest and other taxable income are taken into account.
HMRC specifically says that, when determining your tax band for the Personal Savings Allowance, you should add the interest you have received to your other income.
That means your savings interest itself can sometimes move you into a different tax band and affect the size of your allowance.
What is the Personal Savings Allowance for 2026/27?
For the 2026/27 tax year, the allowances remain:
Basic-rate taxpayers: £1,000
If you fall within the basic-rate band, you can generally receive up to £1,000 of qualifying savings interest without paying tax on it.
Higher-rate taxpayers: £500
Higher-rate taxpayers generally receive a £500 Personal Savings Allowance.
Additional-rate taxpayers: £0
Additional-rate taxpayers do not receive a Personal Savings Allowance.
The PSA figures have therefore not changed from 2025/26.
How does tax on savings interest work?
You are not taxed simply because you have money in a savings account.
Income Tax can arise on the interest or other taxable savings income generated by that money.
Three different tax-free elements may be relevant:
- your Personal Allowance;
- the starting rate for savings; and
- your Personal Savings Allowance.
Which of these you can use depends on your total income.
This is why two people earning exactly the same amount of bank interest can have completely different tax bills.
1. Your Personal Allowance may cover savings interest
The standard Personal Allowance for 2026/27 is £12,570.
If you have not used all of your Personal Allowance against wages, pension income or other taxable income, the unused amount can potentially cover savings interest.
For example, somebody with very little other taxable income may be able to receive significantly more than £1,000 of interest tax-free because their unused Personal Allowance is applied before the Personal Savings Allowance becomes relevant.
The Personal Allowance is not available in full to everyone. It starts to reduce where adjusted net income exceeds £100,000 and can be completely lost at sufficiently high income levels. For 2026/27, the standard allowance is fully withdrawn once income reaches £125,140.
If your income is close to these levels, savings interest can therefore have wider consequences than simply creating a small tax charge on the interest itself.
For more complex personal tax positions, see our personal tax planning service.
2. What is the starting rate for savings?
People with relatively low levels of other income may also qualify for the starting rate for savings.
For 2026/27, this can provide a 0% rate on up to £5,000 of savings income.
However, you do not automatically receive the full £5,000.
HMRC states that every £1 of other income above your Personal Allowance reduces the £5,000 starting-rate band by £1. If your other income reaches £17,570 or more, you are not eligible for the starting rate for savings.
Example: £14,000 salary plus savings interest
Suppose you receive:
Salary: £14,000
Savings interest: £4,000
Your standard Personal Allowance is £12,570.
That leaves:
£14,000 − £12,570 = £1,430
of your salary above the Personal Allowance.
That £1,430 reduces your £5,000 starting-rate band:
£5,000 − £1,430 = £3,570
You could therefore have £3,570 of savings interest covered by the starting rate for savings.
As a basic-rate taxpayer, you may also have a £1,000 Personal Savings Allowance.
In this example, the £4,000 interest would therefore fall within the combined available 0% savings bands.
This illustrates why looking only at the £1,000 Personal Savings Allowance can give an incomplete answer for people on lower incomes.
How much savings interest can you earn tax-free?
There is no single figure that applies to everyone.
Someone with employment income of £30,000 will usually have a different tax-free savings limit from someone with very little other income.
In some circumstances, a person with no other taxable income could potentially have:
£12,570 Personal Allowance
- £5,000 starting rate for savings
- £1,000 Personal Savings Allowance
giving up to £18,570 of savings income before tax becomes payable, assuming the individual is entitled to all three amounts and has no other income using them.
HMRC confirms that the Personal Allowance, starting rate for savings and Personal Savings Allowance can all potentially apply to savings interest.
This is very different from saying that everybody can earn £18,570 of interest tax-free. Most people with wages, pensions or other taxable income will have already used some or all of the Personal Allowance and may not qualify for the starting-rate band.
Personal Savings Allowance example for a basic-rate taxpayer
Suppose you earn:
Employment income: £30,000
Savings interest: £1,300
Your other income is too high for the starting rate for savings.
Assuming you remain a basic-rate taxpayer, you receive a Personal Savings Allowance of £1,000.
Therefore:
Total interest = £1,300
Personal Savings Allowance = £1,000
Taxable interest = £300
At the current 20% savings basic rate for 2026/27:
£300 × 20% = £60 Income Tax
Your original savings capital is not being taxed. The charge relates to the taxable interest above the available allowance. The savings basic rate remains 20% for 2026/27.
Personal Savings Allowance example for a higher-rate taxpayer
Suppose your employment and other income places you within the higher-rate band and you receive £1,200 of taxable savings interest.
Your Personal Savings Allowance is £500.
Therefore:
Total savings interest = £1,200
Personal Savings Allowance = £500
Taxable savings interest = £700
At the 2026/27 savings higher rate of 40%:
£700 × 40% = £280 Income Tax
Again, your exact tax calculation can depend on other income, reliefs and allowances, so the calculation should be considered as part of your overall Income Tax position.
What savings interest counts towards the Personal Savings Allowance?
HMRC states that the allowance can apply to interest from a wide range of sources, including:
- bank accounts;
- building society accounts;
- credit union and savings accounts;
- peer-to-peer lending;
- certain unit trusts and investment funds;
- trust funds;
- government or company bonds;
- certain life annuity payments; and
- some life insurance contracts.
Interest from tax-free accounts such as ISAs does not use your Personal Savings Allowance.
There are separate rules for foreign savings income and certain children’s accounts, so these should not automatically be treated in exactly the same way as a standard UK savings account.
Does ISA interest count towards your Personal Savings Allowance?
No.
Interest and qualifying returns held within an Individual Savings Account (ISA) are generally tax-free and do not count towards your Personal Savings Allowance.
For the 2026/27 tax year, the overall ISA subscription limit remains £20,000.
This means someone can potentially receive tax-free returns within an ISA while separately making use of their Personal Savings Allowance on savings held outside an ISA.
However, ISA rules are changing from April 2027. We explain that later in this guide.
For more detail on the upcoming changes, read our guide to ISA and savings tax changes.
Does interest from a joint savings account count?
Yes.
HMRC normally divides interest from a joint account equally between the account holders for these purposes.
If you believe the interest should be divided differently, HMRC says you should contact them.
For example, if a two-person joint savings account produces £1,600 of interest during the tax year, HMRC would normally treat each account holder as receiving £800.
Each individual then considers that £800 against their own tax position and available savings allowances.
This means the tax result can differ between the two account holders if they fall into different Income Tax bands.
Can savings interest push you into a higher tax band?
Yes.
This is particularly important for people close to the higher-rate or additional-rate thresholds.
HMRC instructs taxpayers to add their savings interest to their other income when working out the tax band relevant to the Personal Savings Allowance.
For example, somebody who appears to be a basic-rate taxpayer before savings interest is added could potentially move into the higher-rate band once a significant amount of interest is included.
If that happens, their Personal Savings Allowance could fall from £1,000 to £500.
This is why simply looking at your salary and assuming you have a £1,000 PSA can sometimes produce the wrong answer.
What rate of tax do you pay on savings interest in 2026/27?
For the current 2026/27 tax year, savings income above your available allowances is generally taxed at the following UK-wide savings rates:
| Savings Income Tax band | 2026/27 rate |
|---|---|
| Basic savings rate | 20% |
| Higher savings rate | 40% |
| Additional savings rate | 45% |
The starting rate for savings is 0% where the relevant conditions are met.
These rates apply specifically to savings income. Other types of income can have different rates.
For example, dividends have their own allowance and tax rates. If you also receive dividends, read our separate guide to UK dividend tax rates for 2026/27.
Keeping these topics separate is important because savings interest and dividend income are not taxed in the same way.
What happens if your savings interest exceeds your allowance?
You only pay Income Tax on the portion of taxable savings income that is not covered by your available allowances and 0% bands.
How the tax is collected depends on your circumstances.
If you complete Self Assessment
If you already complete a Self Assessment tax return, HMRC says you should report your savings interest through your return.
If you need support preparing your return, see our Self Assessment accountant service.
If you are employed or receive a pension
HMRC may collect tax on savings interest by changing your PAYE tax code.
HMRC can estimate the interest you are likely to receive in the current tax year based on information from the previous year and adjust your code accordingly.
It is therefore worth checking your tax code if your savings have changed substantially or an account that previously paid high interest has been closed.
If you are not employed and do not receive a pension
Banks and building societies report savings-interest information to HMRC after the tax year.
HMRC can then tell you whether tax is due and how it should be paid.
Do banks automatically deduct tax from savings interest?
Ordinary UK bank and building society interest is generally paid without Income Tax being deducted at source.
Financial institutions provide relevant interest information to HMRC, which can then use that information to calculate whether tax is due.
That is why receiving the full amount of interest into your bank account does not necessarily mean no tax is due.
You remain responsible for ensuring your overall tax position is correct.
Do you need a tax return for savings interest?
Not necessarily.
If you already file Self Assessment, savings interest should be included as part of that return.
HMRC states that you need to register for Self Assessment if your income from savings and investments exceeds £10,000.
For amounts below that threshold, HMRC may be able to collect tax through PAYE or another assessment process, depending on your circumstances.
If HMRC sends you a tax calculation outside the normal Self Assessment process, our guide to Simple Assessment tax bills explains what the notice means and what to check.
What if HMRC has the wrong savings-interest figure?
HMRC can use information supplied by banks and building societies and, for PAYE purposes, may estimate the current year’s savings income using information from the previous year.
That can create differences where, for example:
- you moved a large amount into or out of savings;
- an account matured;
- your interest rate changed significantly;
- you closed an account;
- you opened new savings accounts; or
- a large one-off interest payment was received.
If HMRC’s figure appears wrong, check your statements and interest certificates rather than assuming the tax code or calculation is automatically correct.
For clients with multiple sources of income, our personal tax planning service can help review the overall tax position.
Can you reclaim tax overpaid on savings interest?
Yes, where too much tax has been paid.
HMRC says a claim for overpaid tax on savings interest generally needs to be made within four years of the end of the relevant tax year.
If you already complete Self Assessment, the refund can normally be dealt with through your tax return.
HMRC also provides the R40 process in qualifying circumstances for taxpayers who do not complete Self Assessment.
Keep relevant savings statements and interest records so that the amount received can be supported if necessary.
Personal Savings Allowance vs Personal Allowance
The names are similar, but these are different tax allowances.
The Personal Allowance is the general amount of income you can normally receive before Income Tax becomes payable. The standard amount for 2026/27 is £12,570, subject to restrictions for higher-income taxpayers.
The Personal Savings Allowance relates specifically to savings income and provides up to:
£1,000 for basic-rate taxpayers;
£500 for higher-rate taxpayers; or
£0 for additional-rate taxpayers.
Where your income is low enough, you may also have access to the starting rate for savings.
All three rules can therefore be relevant to one person’s savings-tax calculation.
Personal Savings Allowance vs ISA
These are also different.
The Personal Savings Allowance applies to qualifying savings income that would otherwise be taxable.
An ISA is a tax-advantaged account in which qualifying interest, income and gains can generally be received tax-free.
Interest generated inside an ISA does not use your Personal Savings Allowance.
This makes ISAs particularly relevant for people who already expect to use their full Personal Savings Allowance.
However, the most suitable place to hold savings depends on much more than tax alone. Interest rates, access requirements, risk, protection and individual financial objectives all matter.
Accounting People provides tax advice rather than regulated investment advice, so recommendations about specific financial products should be obtained from an appropriately authorised adviser where required.
That distinction is worth keeping on the page for E-E-A-T and YMYL accuracy.
What is changing to savings tax from April 2027?
This is one of the most important updates missing from the original version of this article.
The Personal Savings Allowance itself is scheduled to remain unchanged, but savings Income Tax rates are due to rise from 6 April 2027.
The planned savings rates for 2027/28 are:
| Savings tax band | 2026/27 | From 2027/28 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
The government has stated that the starting rate for savings and Personal Savings Allowance will remain in place.
This means a person whose taxable interest exceeds their allowances could pay a higher rate of tax on that excess from April 2027.
Example
Imagine a basic-rate taxpayer has £2,000 of taxable savings interest and a £1,000 Personal Savings Allowance.
That leaves £1,000 taxable.
At the 2026/27 savings basic rate of 20%, the tax would be:
£1,000 × 20% = £200
At the scheduled 2027/28 rate of 22%, the same taxable amount would produce:
£1,000 × 22% = £220
The PSA has not reduced in this example; the tax rate applying above it has increased.
What is changing to Cash ISAs from April 2027?
For the current 2026/27 tax year, the overall annual ISA limit remains £20,000.
From 6 April 2027, the government plans to introduce a £12,000 annual Cash ISA subscription limit for people under 65, within the overall £20,000 annual ISA limit.
People aged 65 or over are due to retain a £20,000 Cash ISA limit.
This is a separate subject from the Personal Savings Allowance, so this article should not be expanded into a full ISA guide.
For the detailed rules and changes, link readers instead to our article on ISA and UK savings tax changes.
That keeps the topical structure of the website much cleaner.
Common Personal Savings Allowance mistakes
Assuming everybody gets £1,000 tax-free
They do not.
Higher-rate taxpayers generally receive £500, while additional-rate taxpayers receive no PSA.
Looking only at salary when deciding your tax band
Savings interest is added to your other income when HMRC determines the band relevant to your PSA. A significant amount of interest can therefore affect the allowance available.
Forgetting the starting rate for savings
People on lower incomes can potentially receive up to another £5,000 of savings interest at 0%.
This band reduces as other income rises above the Personal Allowance and disappears once other income reaches £17,570.
Counting ISA interest towards the PSA
Qualifying ISA interest is tax-free in its own right and does not use your Personal Savings Allowance.
Assuming that because the bank paid interest gross, no tax is due
Banks generally pay ordinary interest without deducting Income Tax. HMRC uses information supplied by financial institutions and your wider tax records to determine whether additional tax is payable.
Forgetting interest held across several accounts
Your Personal Savings Allowance applies to your total relevant savings income, not separately to each bank account.
Having £600 of interest at one bank and £600 at another does not give a basic-rate taxpayer two separate £1,000 allowances.
Frequently asked questions about the Personal Savings Allowance
How much savings interest is tax-free in 2026/27?
A basic-rate taxpayer can generally receive up to £1,000 of qualifying savings interest under the Personal Savings Allowance, while a higher-rate taxpayer receives up to £500. Additional-rate taxpayers receive no PSA. Your Personal Allowance and starting rate for savings may provide further tax-free amounts depending on your other income.
Is the Personal Savings Allowance £1,000 for everyone?
No. It is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers in 2026/27.
What is the starting rate for savings in 2026/27?
The maximum starting-rate band is £5,000 at 0%. Every £1 of other income above your Personal Allowance reduces the available band by £1. You do not qualify for it if your other income is £17,570 or more.
Do I pay tax on savings interest below £1,000?
Not necessarily, but £1,000 is not a universal threshold.
Whether tax is due depends on your Income Tax band, other taxable income, Personal Allowance and any available starting rate for savings.
Does ISA interest use my Personal Savings Allowance?
No. Qualifying interest within an ISA is tax-free independently and does not count towards the Personal Savings Allowance.
Do I have to tell HMRC about savings interest?
Banks and building societies report relevant interest information to HMRC. If you complete Self Assessment, you should report your savings interest on your return. HMRC also states that people with more than £10,000 of savings and investment income need to register for Self Assessment.
Does savings interest affect my tax band?
It can. HMRC says savings interest should be added to your other income when working out which Income Tax band you fall into for Personal Savings Allowance purposes.
Will the Personal Savings Allowance change in April 2027?
The government has announced higher savings Income Tax rates from April 2027, but the Personal Savings Allowance is due to remain at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.
What will savings tax rates be from April 2027?
The scheduled savings rates for 2027/28 are 22% at the basic rate, 42% at the higher rate and 47% at the additional rate.
Need help with tax on your savings and other income?
Savings tax can become more complicated when interest is combined with employment income, pensions, dividends, property income or self-employment.
A calculation that looks straightforward in isolation can also affect your Income Tax band, your Personal Savings Allowance and, for higher earners, other available allowances.
Accounting People can help you review your wider personal tax position, including:
- savings and investment income;
- Self Assessment;
- dividend income;
- property income;
- PAYE and other taxable income;
- available allowances; and
- year-round personal tax planning.
Learn more about our personal tax planning services or our Self Assessment accountant service.
If you receive both savings interest and dividends, you may also find our 2026/27 dividend tax guide useful.
For questions about future ISA limits rather than the Personal Savings Allowance, read our separate guide to ISA and savings tax changes.
