Personal Savings Allowance Explained

The Personal Savings Allowance (PSA) is the amount of interest you can earn on your savings tax-free per tax year. This excludes ISAs, which have their own tax-free allowance.

The size of your Personal Savings Allowance will depend on how much you earn. It’s determined by your yearly taxable income:

• If you’re a basic rate taxpayer, your Personal Savings Allowance entitles you to earn £1000 of savings interest tax-free
• If you’re a higher rate taxpayer, you can earn £500 of savings interest tax-free
• If you’re an additional rate taxpayer, you’re not eligible for a Personal Savings Allowance

Income tax bands are different if you live in Scotland, but you’ll still pay the same tax on savings interest as you would elsewhere in the United Kingdom.

For more information on paying tax on savings accounts and Personal Savings Allowances, visit GOV.UK.

How much tax you’ll pay on your savings depends on your Personal Savings Allowance and several other factors, including:

• Your Personal Allowance — this is different from your Personal Savings Allowance. Your Personal Allowance is the amount you can earn in total (i.e. across your wages, pension and savings combined) before you start paying taxes. This is usually £12,570 but may be higher if you claim Marriage Allowance or Blind Person’s Allowance.
• Your starting rate for savings — if your income is less than £17,570, you may be able to earn additional savings interest without paying tax. The maximum starting rate for savings is £5,000. For every £1 of income above your Personal Allowance (commonly £12,570), your starting rate will reduce by £1. So if you earn £13,570 (and your PSA is £12,570), you can earn £4,000 of savings interest tax-free.
• The type of savings accounts you hold — you can deposit up to £20,000 in an ISA each tax year and earn tax-free interest on this amount for as long as it remains in the account. You can save up to this amount in one type of account or split the allowance across some or all of the other types such as a Lifetime ISA or a stocks and shares ISA. You can only pay £4,000 into a Lifetime ISA in a tax year. Savings in an ISA do not contribute to your Personal Allowance, Personal Savings Allowance, or starting rate for savings.

What types of savings income does the Personal Savings Allowance apply to?

Both the Personal Savings Allowance and starting rate for savings apply to interest earnt from:

• Savings and credit union accounts
• Bank accounts
• Accounts held with building societies
• Open-ended investment companies (OEICs)
• Investment trusts
• Unit trusts
• Life annuity payments
• Some life insurance contracts
• Company bonds
• Government bonds
• Peer-to-peer lending

How do I pay tax on savings interest if I owe it?

If you’ve earnt interest on an account that isn’t an ISA and you’ve exhausted your Personal Allowance, Personal Savings Allowance, and your starting rate for savings, you’ll need to pay tax.

When you earn savings interest, you’ll receive it as gross (without tax deductions). HM Revenue & Customs (HMRC) is aware of these earnings and will adjust your tax code so that you pay tax on this interest (if you’re liable). If you’re employed, you don’t need to do anything; HMRC will automatically change your tax code so that you’ll pay tax if you need to. If you usually submit a self-assessment tax return, you’ll still need to do this and can detail any interest earnt there.

As HMRC bases your tax code on last year’s earnings, you may be overpaying tax if you stop receiving interest. To correct this, you can contact HMRC on 0300 200 3300 or via your online personal tax account. You can also reclaim any overpaid tax via an R40 form, or your usual self-assessment (if this applies).

Are there any tax-free savings accounts?

Some savings accounts are always exempt from tax, regardless of your other earnings or Personal Savings Allowance.

Every tax year, you have a tax-free ISA allowance. For the 2024/25 tax year, this is £20,000, meaning you can deposit this amount and earn interest on it without paying tax. The annual ISA allowances are cumulative, so you can deposit up to the limit each year and benefit from tax-free interest for as long as the money remains in an ISA. For more information on ISA allowances, visit our ISAs explained guide.

Since the introduction of the Personal Savings Allowance on 6 April 2016, many people can earn tax-free interest on savings in whatever type of account they choose. This is because most people will have a Personal Savings Allowance and this tax-free savings limit is often enough to cover the interest they’ll make.