UK Personal Savings Allowance (2026/27)
Personal Savings Allowance 2026/27: £1,000 at basic rate, £500 at higher, nothing at additional, plus the £5,000 starting rate for low earners.
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
The savings balance at which a full year's interest uses up your PSA, at a few illustrative interest rates. Above these balances the interest is taxable, so a Cash ISA saves tax:
| Interest rate | Basic rate (£1,000 PSA) | Higher rate (£500 PSA) | Additional rate |
|---|---|---|---|
| 3% | £33,333 | £16,667 | Any balance - no allowance |
| 4% | £25,000 | £12,500 | Any balance - no allowance |
| 5% | £20,000 | £10,000 | Any balance - no allowance |
For example, at 4% a basic-rate taxpayer's interest reaches the PSA at a balance of £25,000, and a higher-rate taxpayer's at £12,500. The calculation is simply the PSA divided by the interest rate.
Related guides
- ISA Allowance 2026/27 - £20k annual + Lifetime ISA (LISA) + Junior ISA (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.
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: Individual Savings Account (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?
You don't need to claim the PSA - it's automatic. After the tax year ends, your bank or building society tells HMRC how much interest you earned. If your interest is £10,000 or less: if you already send a Self Assessment return, report the interest there; if you're employed or get a pension, HMRC sends you a tax calculation (usually between June and the following March) and usually collects the tax through your tax code, or by a Simple Assessment letter if your code can't be changed. If your bank or building society tells HMRC you have more than £10,000 of savings interest, HMRC will send you a notice to file a tax return. Your tax code may also include an estimate of this year's interest based on last year's, so check it in your Personal Tax Account if your balance or rate has changed.
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. What matters for a fixed-rate bond is when the interest arises. HMRC's manual (SAIM2440) says that where the bond terms let you draw on the money, even with a penalty, the interest is taxable each year as it is credited; where the terms allow no access until maturity, it arises and is taxed at maturity. Watch the "bunching" trap in the second case: a multi-year bond with no access until maturity puts all the interest in one tax year, which can take you over your PSA or into a higher band. Check the account terms, or hold the bond inside an ISA.
How do joint accounts interact with PSA?
HMRC splits the interest on a joint account equally between the account holders, and each uses their own PSA and marginal rate. gov.uk says to contact HMRC if you think it should be split differently. For spouses or civil partners who live together, Form 17 is the declaration that changes the split: it needs evidence that your beneficial interests are unequal, for example a declaration or deed. For most couples the 50/50 default works + maximises PSA use.
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. The rate a foreign country may withhold on interest depends on the double taxation treaty with that country. 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 Worldwide Disclosure Facility (WDF) avoids worse penalties.