The Personal Savings Allowance (PSA) is a tax-free amount of UK savings interest you can receive each year. In 2026/27 it is £1,000 for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate. Interest above the PSA is taxed at your marginal income tax rate. Cash ISA interest sits outside the PSA — it's fully tax-free regardless of rate band.
How the PSA stacks with the starting rate
Two allowances apply to savings interest in 2026/27. Most people only ever use the PSA, but the second one — the £5,000 starting rate — can be useful for low-income savers.
- Personal Allowance (£12,570) — covers savings income before any tax. Applied first in priority.
- Starting Rate for Savings (£5,000 at 0%) — only available if your non-savings income (salary, pension) is below £17,570. The £5,000 starting rate band reduces by £1 for every £1 of non-savings income above £12,570.
- Personal Savings Allowance — £1,000 / £500 / £0 depending on your tax band.
The order: PA covers any income type. Then non-savings income fills bands. Then savings interest is allocated, using the starting rate band first (if available) and the PSA second. Then dividends.
PSA rates by tax band (2026/27)
| Tax band | PSA | Interest tax-free up to |
|---|---|---|
| Non-taxpayer (under £12,570 total income) | £1,000 | £18,570 (PA + start rate + PSA) |
| Basic rate (£12,571 – £50,270) | £1,000 | £1,000 of interest tax-free |
| Higher rate (£50,271 – £125,140) | £500 | £500 of interest tax-free |
| Additional rate (£125,141+) | £0 | None (above PA only) |
Note: dropping into a higher band reduces the PSA, so a £1 pay rise that crosses £50,270 cuts your PSA by £500. For someone earning at the band edge, this is one of several "salary cliff" effects.
How much cash savings give £1,000 of interest?
| Interest rate | Balance needed for £1,000 interest | £500 (higher rate cap) |
|---|---|---|
| 2.0% | £50,000 | £25,000 |
| 3.0% | £33,333 | £16,667 |
| 4.0% | £25,000 | £12,500 |
| 5.0% | £20,000 | £10,000 |
At 2026 savings rates (~4-5% on the best easy-access), a basic-rate taxpayer with more than £20,000-£25,000 in unprotected cash savings will exceed the PSA and start owing tax. The fix: move excess cash into a Cash ISA (£20,000/yr contribution cap), where interest is always tax-free.
How HMRC collects savings tax
Banks and building societies report savings interest to HMRC automatically each year. If you owe savings tax:
- If under £10,000 of taxable interest, HMRC usually adjusts your tax code the following year to collect it through PAYE.
- If over £10,000, you must file Self Assessment.
- If you have other Self Assessment triggers, savings interest is reported there.
You don't need to declare interest under the PSA, but it's still reported by your bank. HMRC matches the figures.
Calculate exact savings interest tax
The savings interest tax calculator applies the PA, starting rate, PSA and your marginal rate — for any balance, any rate, and any income.
Open the savings interest tax calculator →Sources and methodology
PSA rates and rules from gov.uk/apply-tax-free-interest-on-savings. Starting rate for savings from HMRC Savings and Investment Manual.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
Related
- Savings interest tax calculator — precise tax on any savings balance
- Do I pay tax on savings interest? — the basic Q&A
- FSCS savings protection checker — related: protect your cash from bank failure
- ISA vs GIA calculator — when ISA wrapper saves enough tax to matter
- Full UK money glossary
- FAQ library
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