The personal savings allowance lets you earn some savings interest tax-free each tax year. The amount depends on your tax band: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nothing for additional rate taxpayers. On top of it, people with low other income can use the £5,000 starting rate for savings, as well as any unused personal allowance of £12,570. There is no limit on how much you can hold in savings before paying tax. The test is how much interest you earn. The figures below apply for 2026/27 (6 April 2026 to 5 April 2027), and savings tax rates are already legislated to rise from April 2027.
The three layers of tax-free interest
Interest can be sheltered by three separate allowances, applied in this order:
- Personal allowance (£12,570). If your wages, pension or other income do not use all of it, HMRC applies the rest to your interest;
- Starting rate for savings (up to £5,000 at 0%). This is available only if your other taxable income, excluding interest and dividends, is below £17,570, and in full only if that income is no more than the £12,570 personal allowance. Every £1 of other income above the personal allowance reduces it by £1, so it disappears entirely once other income reaches £17,570. The £5,000 limit is frozen by the Finance Act 2026 for every year to 2030/31;
- Personal savings allowance (£1,000, £500 or £0). This is set by section 12B of the Income Tax Act 2007. You get £1,000 if none of your income is higher-rate income, £500 if some is higher-rate but none is additional-rate, and nothing if any of your income falls in the additional rate band.
To decide which band you are in, add your interest to your other income. Interest of £1,500 can therefore turn someone on £49,500 of salary into a higher rate taxpayer, cutting their allowance to £500.
Worked examples
These follow HMRC's own published examples, using 2026/27 rates:
- Low earner. Wages of £16,000 and interest of £200. The personal allowance covers the first £12,570 of wages. The remaining £3,430 reduces the starting rate band from £5,000 to £1,570, which still covers the £200 of interest. No tax is due;
- Basic rate taxpayer. Interest of £1,300 and a £1,000 personal savings allowance. The first £1,000 is tax-free and the remaining £300 is taxed at 20%, so £60 is due;
- Higher rate taxpayer (our illustration). Salary of £70,000 and interest of £2,000. The first £500 of interest is at 0%, and the other £1,500 is taxed at 40%, which is £600.
How much can you have in savings before paying tax?
Because the allowance is measured in interest, the capital it covers depends on the rate you earn. Illustration only, assuming an interest rate of 4% a year: a basic rate taxpayer's £1,000 allowance covers interest on about £25,000, and a higher rate taxpayer's £500 covers about £12,500. If rates fall, the same allowance covers more capital; if they rise, less. Interest on accounts in joint names is split equally between the holders unless HMRC is told otherwise, so a couple with joint savings can use two allowances.
Interest inside an ISA does not count. Nor does interest on some National Savings and Investments products. For 2026/27 you can pay up to £20,000 into ISAs. From 6 April 2027, people aged under 65 will be limited to £12,000 a year in cash ISAs within that £20,000. Savers aged 65 or over keep the full £20,000 cash limit. This is now legislated: the Individual Savings Account (Amendment) (No. 2) Regulations 2026 (SI 2026/1018), made on 10 September 2026, take effect from 6 April 2027. The lower limit applies in any tax year in which you are 64 or under at the end of that year (5 April).
Savings tax rates: 2026/27 and the April 2027 rise
| Band | 2026/27 | 2027/28 (legislated) |
|---|---|---|
| Starting rate for savings (up to £5,000) | 0% | 0% |
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
The 2027/28 rates are set by section 5 of the Finance Act 2026. They apply UK-wide, because savings rates are not devolved. The personal savings allowance amounts themselves are unchanged. So the rise falls only on interest above the allowances, and it makes ISAs and pension saving relatively more valuable from April 2027.
How tax on savings interest is collected
Banks and building societies report the interest they paid to HMRC after each 5 April. What happens next depends on the amount:
- Interest of £10,000 or less, employed or pensioner. HMRC sends a tax calculation, usually between June and the following March. It normally collects the tax through your tax code, and may also add an estimate of the current year's interest to your code. If you have no tax code, or it cannot be changed, HMRC may send a Simple Assessment bill instead. If you owe tax and have had no letter by 31 March of the following tax year, you must contact HMRC;
- Already in Self Assessment. Report all interest on your return;
- Interest over £10,000. You must report it on a Self Assessment tax return, and must register if you do not already file. See our guide to registering for Self Assessment.
Check the estimated interest in your tax code against your statements. HMRC's estimate is based on last year's interest and can be badly wrong if you have moved money or a fixed-term bond has matured. A wrong estimate means you pay too much or too little through PAYE all year.
Paid too much? Claiming it back
If you paid tax on interest when your income was too low to owe it, you can claim a refund for up to 4 years after the end of the tax year concerned. Self Assessment filers claim through the return. Others can contact HMRC or use form R40. Our guide to HMRC tax refunds covers the other routes and how long each takes. Dividends have their own separate £500 allowance, set out in our guide to dividend tax.
For larger cash balances, the useful questions are whose name the money is in, how much can move into ISAs before April 2027, and whether any interest pushes you over a band threshold. Acumon's private client tax team reviews savings and investment income as part of wider tax planning.