Personal Savings Allowance: how much interest can you earn tax-free?

How much is the Personal Savings Allowance?

Basic-rate taxpayers can earn up to £1,000 of savings interest a year tax-free. Higher-rate taxpayers get £500. Additional-rate taxpayers, earning over £125,140, get no allowance at all.

It's based on your total taxable income, including the interest itself, so a large amount of interest can tip you into the higher-rate band and halve your allowance.

What counts as savings income?

The allowance covers interest from bank and building society accounts, credit union accounts, most peer-to-peer lending, government and corporate bonds, and interest distributions from some investment funds. Interest earned inside an ISA doesn't count and is always tax-free, so it doesn't use up your allowance.

The starting rate for savings

If your other income (such as wages or pension) is low, you may also get the starting rate for savings. This lets you earn up to £5,000 of interest tax-free on top of the Personal Savings Allowance. It shrinks by £1 for every £1 of other income above your £12,570 Personal Allowance, and disappears completely once your other income reaches £17,570.

How much do you need saved to go over?

At 4% interest, a basic-rate taxpayer would need around £25,000 in savings before paying tax, and a higher-rate taxpayer about £12,500. With higher interest rates, more people are going over their allowance without realising.

How is tax on savings interest paid?

Banks pay interest without taking tax off. If you go over your allowance, HMRC usually collects the tax by changing your tax code, using information banks send it. If you fill in a Self Assessment return, you declare the interest there instead. Tax on savings above the allowance is charged at your normal income tax rate, and the government has announced these savings rates will rise by 2 percentage points from April 2027.