What is the Personal Savings Allowance in the UK?
The Personal Savings Allowance means you could earn tax-free interest, but it has its limitations. Learn how you can benefit, and how you pay tax on savings interest in the UK.
This article is not advice. If you would like to receive advice on your savings and investments, consider speaking to a Financial Adviser.
Updated 26 August 2026
The Personal Savings Allowance: At a glance
What do I need to know? Depending on how much tax you pay, you can receive a maximum of £1,000 of interest a year tax-free.
Why does it matter? For basic or higher rate taxpayers, the Personal Savings Allowance can offer some limited relief on the interest you earn from savings.
What does it mean for me? If you have dependents, entering the workforce for the first time, they could benefit from earning interest on savings.
Healthy savings are essential for balanced personal finances. It’s one of the reasons the UK government provides tax relief on interest. But how useful is the Personal Savings Allowance (PSA) to you, and how can you get the most out of it?
In this article we’ll explore the Personal Savings Allowance. We’ll cover how much interest you can earn tax free, and why high-interest savings accounts can be an attractive option for growing wealth, even if you do pay tax.
What is the Personal Savings Allowance?
The PSA is the annual amount that HMRC allows you to earn in interest on your savings without paying tax in the UK. The relief is capped at a maximum of £1,000.
How much you can earn tax-free depends on your Income Tax bracket. There are other ways to earn interest before paying tax, such as opening and funding Individual Savings Accounts (ISAs).
How the Personal Savings Allowance works with ISAs
You can earn interest tax-free on cash as part of your Personal Savings Allowance and from ISAs, provided you don’t exceed the annual limit.
Why can I combine my PSA and ISA limit?
HMRC provides a range of annual allowances to taxpayers. Whether or not you qualify for some or all of the available allowances often depends on your circumstances, which is how the Personal Savings Allowance works. The annual Cash ISA allowance is one example where eligibility applies to most savers in the UK.
But the rules are set to change, placing greater limits on the amount of cash you can save in an ISA every year in most cases.
At the time of writing, HMRC allows savers to put aside a maximum of £20,000 in Cash ISAs. But from 06 April 2027, only savers aged 65 and over will be allowed to use their entire ISA allowance for cash savings. Savers under the age of 65 will be allowed to save a maximum of £12,000 a year in Cash ISAs. The rest of your allowance must be used to fund other types of accounts, such as Stocks and Shares ISAs.
The Personal Savings Allowance for 2026/27
Your allowance depends on the highest rate of Income Tax you pay. Below, we’ve outlined the three tiers and how much interest you earn tax free:
Tax rate | Income | PSA Allowance |
Personal Allowance | £0 - £12,570 | £1,000 |
Basic | £12,570 - £50,270 | £1,000 |
Higher | £50,270 - £125,140 | £500 |
Additional | Over £125,140 | None |
If you live in Scotland, the rates are slightly different:
Tax rate | Income | PSA Allowance |
Personal Allowance | £0 - £12,570 | £1,000 |
Starter | £12,570 - £14,876 | £1,000 |
Basic | £14,877 - £26,561 | £1,000 |
Intermediate | £26,562 - £43,662 | £1,000 |
Higher | £43,663 - £75,000 | £500 |
Advanced | £75,001 - £125,140 | None |
Top | Over £125,141 | None |
If you have dependents that are working in low-pay industries at the start of their career, they could benefit from the Personal Savings Allowance, even if you’re a higher rate taxpayer.
Let’s explore how this might work.
Example: how a dependent can benefit from the Personal Savings Allowance
Paul is a Finance Director and his son, Louis, has just graduated from university. Louis is looking for a job in the tech sector to use his degree, but hiring is slow.
In the meantime, he’s working and earning the minimum wage. He works approximately 30 hours a week on a zero-hour contract.
Paul has saved sensibly over the years and is on track for a comfortable retirement. He decides to gift an early inheritance to Louis, investing £20,000 into high-interest notice savings accounts through Flagstone.
Depending on his interest and assuming Louis doesn’t withdraw his funds, he could earn £960 in interest through the Personal Savings Allowance, tax free, every year that he earns under £50,271 in income (the higher rate of tax).
How does the Personal Savings Allowance compare to ISAs?
There are five main types of ISA:
Cash ISA: A bank account where you can place cash deposits.
Stocks and shares ISA: An investment account where you can purchase stocks and shares.
Innovative Finance ISA (IFISA): An investment account where you can loan money to support businesses.
Lifetime ISA (LISA): A savings account designed for first time buyers (replacing the Help to Buy ISA) and people saving for retirement. The UK government pays an annual bonus of up to £1,000 directly into LISA accounts, depending on how much you contribute.
Junior ISA (JISA): A savings account for children, locking their money away until they turn 18.
HMRC resets your allowance every tax year, which runs from 06 April to 05 April the following year.
This means that if you fund Cash ISAs over a handful of years, you can build greater tax-free interest earnings over time, regardless of your Income Tax rate.
Is it better to invest or save if you don’t benefit from the Personal Savings Allowance?
Investing has historically scaled returns faster than saving. But investing is much riskier, and you could lose what you invest if the unexpected occurs. Past performance is also no guarantee of future success.
Holding your savings in a bank account is lower risk, which can result in slower growth. But if you leave your money for a long time, you benefit from compound interest, especially when you have significant cash deposits and competitive interest rates.
Investments can also benefit from compound interest. But as their value is much more volatile, you could still lose more than you invest. This is why building a balanced portfolio is a useful way to protect your wealth.
The right approach for you will ultimately depend on your individual circumstances. No one can tell you the best way to balance your investments, although a financial adviser can help you consider your options.
How do you pay tax on interest?
If you earn more in interest than the Personal Savings Allowance, HMRC will update your tax code (if you’re employed or receiving a pension). If you’re self-employed, you need to declare your earnings via a Self Assessment tax return.
How much in savings can I have before paying tax in the UK?
In the UK, you pay tax on savings interest, not the balance of your deposits. Savings interest is considered income above set thresholds. But ISAs allow you to save £20,000 tax-free every year.
How much interest can you earn tax free?
It depends on your circumstances and the AER (Annual Equivalent Rate) in your savings accounts. But assuming your earnings are below the higher rate of tax (£50,271), and you have maxed out your ISA contributions for the first time within one year, at an interest rate of 5%, the maximum you could earn tax-free would be £2,000.
The starting rate for savings and its limitations
There is another form of tax relief called the ‘starting rate for savings’, which technically means you can earn a separate £5,000 in interest. But this only applies to people earning under £17,570.
The ‘starting rate for savings’ does not increase the maximum you can earn before tax. This is because the starting rate tapers downwards as your income increases. For every pound you make between the tax-free allowance (£12,570) and the ceiling beyond which the scheme no longer applies (£17,570), the starting rate reduces in kind.
Financial resilience beyond the Personal Savings Allowance
Additional-rate taxpayers don’t receive a Personal Savings Allowance, so it’s important to consider all your options when determining how to earn interest.
For significant cash deposits, the amount you can earn in interest in total can more than offset the tax you’ll pay, provided you open high-interest savings accounts. When depositing large sums into savings accounts, it’s important to find competitive rates, and spread your risk across multiple institutions to maximise your FSCS protection.
Build a savings portfolio with high-interest savings accounts
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