What Is the Personal Savings Allowance?

With interest rates higher than they were for years, the Personal Savings Allowance (PSA) matters more than it has in a long time. It is the slice of savings interest you can earn before any tax is due, and crucially its size depends on which Income Tax band you are in. For top earners, it is zero.

How the Allowance Changes by Band

The PSA is one of the clearest examples of how UK tax depends on your overall income, not just your savings:

Note that adding savings interest to your income can itself tip you from basic into higher rate, shrinking your PSA in the process. The PSA sits on top of your Personal Allowance, which already shields the first £12,570 of total income.

A Worked Example for 2026/27

Suppose Leah is a higher-rate taxpayer earning £60,000 from her job. She has £40,000 in an easy-access savings account paying 4.5%, generating £1,800 of interest in 2026/27.

Her PSA as a higher-rate taxpayer is £500. So:

• First £500 of interest is tax-free (covered by the PSA).
• Remaining £1,300 is taxed at her higher rate of 40%.

Tax due = £1,300 × 40% = £520.

If Leah had instead held that money in a Cash ISA, all £1,800 of interest would be tax-free and would not touch her PSA at all. Our savings tax calculator lets you compare an ISA against a taxable account.

How the tax actually gets paid

Leah does not need to do anything manually. Banks report interest to HMRC, which usually collects the £520 by reducing her tax code for the following year, so the tax comes out of her salary automatically. If she files Self Assessment, she declares the interest on her return instead.

The Starting Rate for Savings

There is a lesser-known extra: the starting rate for savings, a 0% band on up to £5,000 of interest for people with low earned income. It reduces pound for pound as your non-savings income rises above the £12,570 Personal Allowance, so it is fully used up once earned income reaches £17,570. It mainly helps pensioners and others living largely on savings, who can combine it with the PSA to receive a substantial amount of interest tax-free.

“Higher rates have turned the Personal Savings Allowance from a footnote into a real planning point. For higher earners with large balances, using your ISA allowance first is usually the smarter move.”

Related terms

• Personal Allowance: the tax-free band that comes before the PSA.
• Savings tax calculator: compare ISA versus taxable interest.
• TapTax blog: guides on tax-efficient saving and ISAs.

People also ask

Do I have to declare savings interest to HMRC?

Banks and building societies report your interest to HMRC automatically, so if you are on PAYE you usually do not need to declare it. Any tax due is collected through a tax code adjustment. If you complete Self Assessment, or your interest is very large, you should report it on your return.

Does the Personal Savings Allowance cover dividends?

No. Dividends have a separate Dividend Allowance, which is £500 for 2026/27. The Personal Savings Allowance only covers interest from savings, current accounts, and similar products. The two allowances are entirely separate and do not overlap.

Can a couple combine their Personal Savings Allowances?

Not directly, but each person has their own PSA, so a couple can hold savings in the name of the lower earner to use a larger allowance. Moving savings to a basic-rate or non-taxpaying spouse can mean more interest is sheltered overall.