Answers · UK 2025/26
How much savings interest can a basic rate taxpayer earn tax-free in 2026/27?
A basic rate taxpayer (income £12,571--£50,270) has a Personal Savings Allowance of £1,000 in 2026/27. This means the first £1,000 of savings interest is tax-free. Interest above £1,000 is taxed at 20% (basic rate). Higher rate taxpayers get a £500 allowance; additional rate taxpayers get nothing.
Full answer
UK savers benefit from a Personal Savings Allowance (PSA) that shields a portion of their savings interest from income tax each year. The amount depends on your tax band. **Personal Savings Allowance 2026/27** | Tax band | Annual income | PSA | |---|---|---| | Basic rate (20%) | £12,571--£50,270 | £1,000 | | Higher rate (40%) | £50,271--£125,140 | £500 | | Additional rate (45%) | Above £125,140 | £0 | **How tax on savings interest works** Savings interest is added to your other income and taxed at your marginal rate -- but the PSA gives you a 0% band first. **Worked example -- basic rate taxpayer** Emma earns £28,000 salary. She has £15,000 in a savings account at 5% interest = £750 interest earned. - PSA: £1,000 - Interest: £750 (within PSA) - Tax: £0 **Worked example -- more interest than PSA** Tom earns £35,000 salary and has £40,000 in savings at 5% = £2,000 interest. - PSA: £1,000 (0% tax) - Remaining interest: £2,000 - £1,000 = £1,000 taxable at 20% - Tax bill on savings: £200 - Net interest received: £1,800 **Worked example -- higher rate taxpayer** Sarah earns £65,000. She has £30,000 in savings at 5% = £1,500 interest. - PSA: £500 (higher rate allowance) - Remaining interest: £1,500 - £500 = £1,000 taxable at 40% - Tax bill on savings: £400 **How HMRC collects the tax** Since 2016, banks and building societies pay savings interest gross (without deducting tax). HMRC collects any tax due through your PAYE tax code adjustment or Self Assessment if you earn over £10,000 in savings interest. **ISA alternative** Interest within an ISA does not use your PSA and is completely tax-free. If you regularly exceed your PSA, maximising your ISA allowance (£20,000/year) is an effective tax-planning strategy. **Starting rate for savings** Low earners may also qualify for the starting rate for savings -- an additional £5,000 at 0% available to those with non-savings income below £17,570.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.