The Personal Savings Allowance explained
Published: 15 January 2026
Did you know you may not need to pay tax on up to £1,000 of savings interest? That’s because of the Personal Savings Allowance. Read on to find out more.
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) is how much interest your savings could earn each tax-year without having to pay tax on it. It’s set by the UK government.
The PSA includes interest from your bank or building society savings accounts - but not any Individual Savings Accounts (ISAs) you may have. This is because interest from ISAs is already tax-free. You can save up to the annual ISA allowance each tax year - for 2025/26, this is £20,000.
Your PSA threshold can change depending which income tax band you’re in.
Don’t confuse the Personal Savings Allowance with the Personal Allowance – they’re different. The Personal Allowance is the amount of your income you don’t have to pay tax on.
How does the Personal Savings Allowance work?
Your PSA is based on the rate of tax you pay:
- Basic rate (20%) taxpayers can earn up to £1,000 a year in savings interest before paying tax.
- Higher rate (40%) taxpayers can earn up to £500 a year in savings interest tax-free.
- Additional rate (45%) taxpayers don’t get a PSA.
You get a new PSA each tax year (between 6 April and 5 April the following year).
Interest from most savings accounts count towards your PSA – but not ISAs. Premium bonds also don’t count towards the PSA.
If your income is less than £17,570, you may also qualify for the starting rate for savings. The starting rate means you may also get up to £5,000 in interest without having to pay tax on it.
If you have a joint savings account, the interest from that is split equally between the account holders and counts towards each person's own PSA.
Here’s how it works
If you’re a higher rate taxpayer and earn £900 in savings interest in a tax year, you’d need to pay tax on £400 of that interest. That’s because £400 is the difference between the interest you earn and the £500 PSA allowance you get as a higher rate taxpayer.
Does ISA interest count towards your Personal Savings Allowance?
No, interest from any ISAs you may have isn’t part of your Personal Savings Allowance. That’s because interest from ISA savings is already tax-free.
Here’s how it works
- You’re a basic taxpayer
- You earn £700 in savings interest during the tax year from three standard savings accounts
- You have £500 interest from an ISA
You wouldn’t pay any tax on the interest from either account in that tax year.
Does my Personal Savings Allowance affect my ISA?
No, your PSA and the tax-free allowance you get with an ISA are different. But some people aren’t aware the PSA could mean you can earn some interest without having to pay tax on it.
It means that if you’re a basic rate taxpayer, you could have savings of up to £25,000 in a regular savings account (based on a 4% interest rate) before you’d pay tax on the interest from those savings. In this example, you could earn £1,000 in interest before paying tax.
For higher rate taxpayers, you could save £12,500 a year in a regular savings account without paying tax on the interest (based on a 4% interest rate). In this example, you could earn £500 in interest before paying tax.
If you also have an ISA, that’s some impressive tax-free saving!
What happens if you go over your Personal Savings Allowance?
If the interest you earn is more than your PSA, you may have to pay tax to HM Revenue & Customs on that amount. That could be a change to your tax code or if you’re self-employed, through self-assessment.
So if you were a higher rate taxpayer and you earned £900 in savings interest in a tax year, that’s £400 over your PSA. This means you’d need to pay 40% tax on £400 (£160).
Tax rules can be complex, so it’s always best to get advice about your circumstances from HMRC or a tax professional.
Hopefully you now know a bit more about how the Personal Savings Allowance works. Happy saving!
View our savings accountsThis article is not advice, and you should seek independent financial or legal advice if needed
