Your Personal Savings Allowance - PSA explained


Basic rate taxpayers in the UK can earn up to £1,000 of interest on their savings accounts completely tax-free.

This is your Personal Savings Allowance, or PSA. 

You only pay tax on interest you earn that is above your PSA. 

But the limit depends on earnings, and higher-rate tax payers can earn up to £500 interest before having to pay tax. 

If your total taxable income is less than £17,000 you won’t pay any tax on interest from savings at all.

Interest from Individual Savings Accounts – or ISAs – doesn’t count towards your PSA because it’s already tax-free.

Tax due on interest earned above your PSA is collected automatically through a change to your tax code if you self-assess. Otherwise it's your responsibility to declare it. In this instance you should contact HMRC as they will need to adjust your tax code for the next tax year.

For instance:

You are a basic rate taxpayer earning £20,000 a year and get £250 in account interest:  

You won’t pay any tax on your interest, because it’s less than your £1,000 Personal Savings Allowance.  

You are a basic rate taxpayer earning £20,000 a year and get £1,500 in account interest:  

You won’t pay tax on your interest up to £1,000. But you’ll need to pay basic rate tax (20%) on the £500 interest over your Personal Savings Allowance.  

You are a higher rate taxpayer earning £60,000 a year and get £250 in account interest: 

You won’t pay any tax on your interest, because it’s less than your £500 Personal Savings Allowance.  

You are a higher rate taxpayer earning £60,000 a year and get £1,100 in account interest:  

You won’t pay tax on your interest up to £500. But you’ll need to pay higher rate tax (40%) on the £600 interest over your Personal Savings Allowance. 

Personal Savings Allowance Q&A 

What is classed as interest?

Any interest earned from a bank, building society, other account provider such as a credit union, or from government bonds.

Do I need to inform the building society about my savings accounts at other providers?

No. You don’t have to divulge anything about your tax status or savings income to any account provider. 

Is there any point having an ISA now I don’t pay tax on my interest?

Yes. For many people, ISAs remain a popular savings option because you continue to earn tax-free interest on previous years’ ISA balances as well as what you’ve invested in the current year. And with your money in an ISA, even if your income goes into the higher tax band you’ll still earn tax-free interest.


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