Personal Savings Allowance: 2026/27

UK Personal Savings Allowance (2026/27)

Practical guide to the UK Personal Savings Allowance for 2026/27: £1,000 / £500 / £0 bands by Income Tax band, the £5,000 savings starter rate for low earners, what counts as savings income, how HMRC collects tax above PSA, joint account split + Form 17 election, fixed-rate bond bunching trap, and when to use Cash ISA vs rely on PSA.

2026/27 PSA bands

Tax band	PSA	Above PSA
Basic-rate (20%)	£1,000	Interest above £1,000 taxed at 20%
Higher-rate (40%)	£500	Interest above £500 taxed at 40%
Additional-rate (45%)	£0	ALL interest taxed at 45% - no allowance

A higher-rate taxpayer who slips into the additional-rate band (income above £125,140) loses the £500 PSA entirely - the previously tax-free £500 of interest now falls into the 45% additional-rate band, costing up to £225 extra tax (£500 × 45%) on the same interest.

When Cash ISA beats PSA + savings account

Approximate break-even thresholds at various savings rates (when interest exceeds PSA):

Savings amount	Basic-rate breakeven	Higher-rate breakeven	Additional-rate
£10,000 savings	£100 at 1%	£200 at 2%	No threshold - all taxable
£25,000 savings	£250 at 1%	£500 at 2%	No threshold
£50,000 savings	£500 at 1%	£1,000 at 2%	No threshold

At 4% savings rate (common 2026 market): basic-rate breaks PSA at £25k; higher-rate at £12.5k. Above these, Cash ISA saves tax.

Frequently asked questions

What is the Personal Savings Allowance?

Tax-free band on savings interest, introduced April 2016. £1,000 tax-free interest for basic-rate taxpayers; £500 for higher-rate; £0 for additional-rate (income above £125,140 in 2026/27). Above the PSA, interest is taxed at your marginal Income Tax rate. PSA does NOT apply to dividends (which have separate Dividend Allowance £500 from April 2024) or to capital gains.

What counts as savings income?

(a) Bank + building society interest. (b) Interest on government bonds (gilts) - coupons; capital gains on gilts are CGT-exempt. (c) Interest on corporate bonds. (d) Interest on credit union accounts. (e) Peer-to-peer lending interest. (f) Interest distributions from open-ended investment funds (OEICs) held outside ISA / SIPP. (g) National Savings + Investments products (Income Bonds, fixed-rate savings) - though some NS&I products are tax-exempt (Premium Bonds + Index-Linked Savings Certificates). NOT counted: ISA interest (tax-free regardless), dividends (separate allowance), pension income (Income Tax separate), salary, rental income.

What's the £5,000 savings starter rate?

An additional £5,000 of savings interest taxed at 0% for low earners. Applies if your TOTAL income (excluding savings) is below £17,570 (the Personal Allowance £12,570 + £5,000 starter rate). The starter rate is reduced £1-for-£1 by other income above £12,570 until eliminated at £17,570. Combined with PSA: a low earner can receive up to £18,570 of total income (£12,570 PA + £5,000 starter + £1,000 PSA) tax-free if structured as savings income. Useful for early retirees living off savings before State Pension.

How is PSA collected by HMRC?

Banks + building societies report your interest to HMRC. HMRC adjusts your tax code to collect any tax due via PAYE (employees) or includes in your Self Assessment (self-employed / additional-rate taxpayers / those with complex income). You don't need to actively claim PSA - it's automatic. If interest exceeds PSA + you don't do SA, HMRC issues a P800 tax calculation at year-end + collects via tax code adjustment. Common error: HMRC tax code adjustments based on PREVIOUS year's interest - which can be wrong if rates / balances change.

Should I use Cash ISA or rely on PSA?

Depends on total interest + tax band. Basic-rate taxpayer earning £400/year interest: PSA covers it; Cash ISA offers no advantage. Same person at £1,500/year interest: £500 above PSA = £100 tax = Cash ISA saves £100/year. Higher-rate taxpayer at £1,000 interest: £500 above PSA = £200 tax = Cash ISA worth it. Rule of thumb: if your interest exceeds your PSA (£1,000 basic / £500 higher), use Cash ISA for the excess + future savings. ISA growth is permanent tax shelter; PSA is annual + can shrink if you change tax band.

Does PSA apply to fixed-rate bonds + accounts?

Yes - PSA covers interest from any UK savings account regardless of structure. Fixed-rate bonds: interest is taxable in the year of MATURITY for most accounts (not annually accrued unless interest is paid annually). Watch the "bunching" trap: 3-year bond paying all interest at maturity = interest counts in maturity year, potentially pushing over PSA + into higher tax bracket. Workaround: choose accounts paying interest annually + spreading the tax impact, or hold within ISA wrapper.

How do joint accounts interact with PSA?

Default: interest split 50/50 between joint owners + each uses their own PSA + marginal rate. Form 17 election can change the split if actual ownership is unequal (e.g. one partner contributed all funds) - account must be held as tenants in common with declaration of trust. For most couples the 50/50 default works + maximises PSA use. Both joint owners need to declare their share in SA / on tax code if exceeding PSA.

What about overseas savings interest?

UK-resident taxpayers must declare worldwide savings interest. PSA applies to overseas interest as if it were UK interest. Foreign withholding tax can be relieved via Foreign Tax Credit Relief (FTCR) - you don't pay UK tax + foreign tax on the same income. Common UK + overseas double tax treaties limit foreign withholding to 10-15%. UK GAAR + tax avoidance rules cover artificial structures. Watch: undeclared overseas interest is targeted by HMRC via CRS (Common Reporting Standard) information exchange - voluntary disclosure under WDF avoids worse penalties.

ISA Allowance 2026/27 - £20k annual + LISA + JISA.
UK Cash ISA vs Taxable Savings 2026/27 - break-even analysis.
UK Emergency Fund Target 2026/27 - where to hold emergency fund.
UK Tax-Free Allowances Stack 2026/27 - all 17 tax-free routes.