Skip to main content Skip to footer
 

Personal Savings Allowance

What is the Personal Savings Allowance?

The Personal Savings Allowance (PSA) allows you to earn up to a certain amount of interest without paying tax each year. How much tax-free interest you can earn will depend on the tax band your salary falls into.

What is the benefit of a Personal Savings Allowance?

The Personal Savings Allowance (PSA) was introduced in April 2016. It was created to reduce how much tax UK savers would pay.

Before the PSA, tax was taken from your savings interest. After the change, you have a set amount of interest you can earn without paying tax.

How the Personal Savings Allowance works

  • If you’re a basic rate taxpayer, you can earn up to £1,000 a year in interest without having to pay tax.
  • If you are a higher rate taxpayer, you can earn £500 a year without paying tax. 
  • Additional rate taxpayers don’t receive any allowance at all.

What counts towards your allowance?

Interest earned from the following will count towards your allowance:

  • Bank and building society accounts
  • National Savings and Investments
  • Government or company bond income interest distributions from authorised units, but not dividends
  • Annuity payments you’ve purchased
  • Accounts with credit unions.

Interest from ISAs does not count towards your PSA.

How does the Personal Savings Allowance affect me?

How much interest you can earn without paying tax depends on how much you earn. See how your wage affects your PSA below:

  • Basic-rate (20%) taxpayers: can earn £1,000 in savings interest per year with no tax
  • Higher-rate (40%) taxpayers: can earn £500 in savings interest per year with no tax
  • Additional-rate (45%) taxpayers: £0 – they do not get an allowance.

What about any tax due on interest above my allowance?

If the interest you earn in a year is more than your Personal Savings Allowance, you need to pay tax.

Learn how to pay any tax due directly from HMRC.  

How does the Personal Savings Allowance affect ISAs?

ISAs are tax-free savings accounts. This means any interest you earn will not count towards your PSA.