The PSA in 2026/27 is £1,000 for basic-rate taxpayers, £500 for higher-rate, and £0 for additional-rate. Interest below the PSA is tax-free; interest above is taxed at your marginal income tax rate. Banks no longer deduct tax at source — they report interest to HMRC, who adjust your tax code for the following year. If your total interest is above £10,000, you must file Self Assessment.
How much tax-free interest you actually get
| Taxable income band | PSA | Tax on interest above |
|---|---|---|
| Below £50,270 (basic rate) | £1,000 | 20% |
| £50,270 – £125,140 (higher rate) | £500 | 40% |
| Above £125,140 (additional rate) | £0 | 45% |
Note: the PSA band depends on your total taxable income including savings interest itself. If interest pushes you across the higher-rate threshold, your PSA can shrink in that same year.
The starting rate band (£5,000)
If your non-savings income is below £17,570, you also have a £5,000 starting rate band — interest below £17,570 of total income is taxed at 0%. This stacks ON TOP of the PSA. Used by:
- Retirees living off pensions and savings interest with low taxable income.
- Stay-at-home parents.
- People between jobs.
See the starting rate band guide for the full mechanic.
Worked examples
Basic-rate taxpayer: £30,000 salary, £1,400 interest
| PSA (basic rate) | £1,000 tax-free |
| Excess interest above PSA | £400 taxable at 20% |
| Tax owed | £80 |
Higher-rate taxpayer: £80,000 salary, £1,400 interest
| PSA (higher rate) | £500 tax-free |
| Excess interest above PSA | £900 taxable at 40% |
| Tax owed | £360 |
How HMRC collects the tax
Banks and building societies report all interest paid to HMRC annually (the Interest Information programme). HMRC then:
- For PAYE-only earners: adjusts your tax code for the next year to collect the tax owed.
- For Self Assessment filers: includes the interest in your annual return.
- For those above £10,000 of total interest: requires you to register for Self Assessment if not already.
The lag means tax is typically collected 12–24 months after the interest was earned. Set aside the cash if you're expecting a code adjustment.
Planning levers
- Cash ISA — interest inside an ISA is tax-free, full stop. No PSA needed. £20,000 annual limit.
- Premium Bonds — prizes are tax-free (with caveats). See the Premium Bonds guide.
- NS&I Income Bonds + Direct Saver — taxable, no PSA workaround.
- Joint accounts — split the interest 50/50 between holders. Use the lower-earning partner's PSA strategically.
- Marriage Allowance — if your partner has unused Personal Allowance, transfer £1,260 of it. Doesn't directly affect PSA but reduces your overall tax bill.
- Salary sacrifice — reducing taxable income can move you from higher-rate (£500 PSA) back to basic-rate (£1,000 PSA).
Common mistakes
- Assuming the PSA is per account. It's per person, across all UK and most foreign accounts.
- Forgetting Premium Bonds prizes don't count toward PSA. They're separately tax-free.
- Ignoring foreign bank interest. Foreign-source interest is taxable in the UK if you're UK-resident; declare on Self Assessment.
- Missing the £10k Self Assessment trigger. Total interest above £10k requires SA, even if you're a PAYE earner with no other reason to file.
- Cumulative PSA misunderstanding. The PSA doesn't carry forward year to year. Use it or lose it.
Sources and methodology
The PSA was introduced in April 2016 (Finance Act 2016). See HMRC's guidance on tax-free interest. For personalised analysis, see the savings interest tax calculator. The methodology page documents sources.
Related savings + interest guides
Why 2026/27 catches so many savers
The PSA itself has not changed since 2016 — £1,000 / £500 / £0 are the same figures as on day one. What has changed is the world around it. Two forces are now colliding, and 2026/27 is where they bite hardest for ordinary savers.
- Frozen thresholds (fiscal drag). The £50,270 higher-rate threshold and the £12,570 Personal Allowance have been frozen since April 2021 and are set to stay frozen. As pay rises with inflation, more people are dragged into the higher-rate band — where the PSA is only £500, not £1,000. Our fiscal drag tracker shows how many taxpayers have crossed each threshold.
- Higher interest rates. Through the 2010s, easy-access accounts paid well under 1%, so it took a six-figure balance to generate £1,000 of interest. With best-buy rates now around 4–5%, the balance needed to breach the PSA has collapsed.
The result: a saver who comfortably stayed inside the PSA for a decade can tip over it without changing their behaviour at all — same pot, same habits, but rates four or five times higher and a frozen band quietly pulling them toward higher-rate status.
The breach point: how little it now takes
Here is the figure that surprises people most. At a 4.5% interest rate, a basic-rate taxpayer breaches the £1,000 PSA with a little over £22,000 of ordinary savings — and a higher-rate taxpayer breaches their £500 PSA with only around £11,000.
| Rate on cash | Basic rate — balance that hits £1,000 | Higher rate — balance that hits £500 |
|---|---|---|
| 4.0% | £25,000 | £12,500 |
| 4.5% | £22,222 | £11,111 |
| 5.0% | £20,000 | £10,000 |
These are not large sums — they are within reach of anyone holding an emergency fund plus a house deposit in cash. A basic-rate saver with £30,000 at 4.5% earns £1,350 of interest: £1,000 is covered by the PSA and £350 is taxed at 20%, a £70 bill. The same £30,000 in the hands of a higher-rate saver earns the same £1,350, but only £500 is covered and £850 is taxed at 40% — a £340 bill on identical cash. The lesson for 2026/27 is that the question is no longer "do I have a lot of savings?" but "what rate am I earning, and which band am I in?"
The higher-rate double whammy
The most expensive 2026/27 scenario is the saver whose own interest tips them across £50,270. Because the PSA band is set by total taxable income including the interest, crossing the higher-rate threshold does two things in the same year: it halves the PSA from £1,000 to £500, and it lifts the rate on the excess from 20% to 40%.
Example: £49,000 salary plus £2,500 interest
| Salary (non-savings income) | £49,000 |
| Savings interest | £2,500 |
| Total income | £51,500 |
| PSA now available (higher-rate band reached) | £500 |
| Interest taxed (£2,500 − £500) | £2,000 |
| Of which falls in the basic-rate band (up to £50,270) | £770 @ 20% = £154 |
| Of which falls in the higher-rate band (above £50,270) | £1,230 @ 40% = £492 |
| Tax due on the interest | £646 |
Had the same person stayed just under £50,270 of total income, they would have kept the full £1,000 PSA and paid 20% on the rest — a far smaller bill. This is the salary-band edge effect described earlier, and it is exactly the kind of case where reducing taxable income pays for itself.
Worked numbers: splitting savings between spouses
Because the PSA is per person, a couple has up to two PSAs to use — and the allowances are wasted if all the cash sits in one name. Consider a couple with £50,000 of joint cash at 4.5% (£2,250 of interest), where one is a higher-rate taxpayer and one is a basic-rate taxpayer.
| Arrangement | Tax on the £2,250 interest |
|---|---|
| All £50,000 held by the higher-rate spouse (£500 PSA) | £1,750 @ 40% = £700 |
| All £50,000 held by the basic-rate spouse (£1,000 PSA) | £1,250 @ 20% = £250 |
| Held jointly 50/50 (interest split, each uses their own PSA) | £140 (see below) |
Under the joint 50/50 split, each spouse receives £1,125 of interest. The basic-rate spouse pays £25 (£125 over their £1,000 PSA at 20%); the higher-rate spouse pays £250 (£625 over their £500 PSA at 40%) — about £275 combined if simply halved. Moving more of the balance into the basic-rate spouse's sole name does better still: putting enough cash in their name to use the full £1,000 PSA, and the rest with the higher-rate spouse, can cut the bill toward the £250 figure above. The general rule for 2026/27 is to fill the lower earner's PSA first, then shelter the surplus.
Beyond splitting, the levers covered earlier on this page — moving cash into a Cash ISA (£20,000 each per year, interest always tax-free), using Premium Bonds for tax-free prizes, and salary sacrifice to drop back from higher-rate to basic-rate — all become more valuable precisely because frozen thresholds and higher rates have made the PSA so much easier to breach. Reporting note: none of this changes how the tax is collected — HMRC still adjusts your tax code for interest under £10,000 and requires Self Assessment above it — but it changes how much there is to collect.
How UK Tax Drag holds itself to account
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