How much savings interest can I earn tax-free in 2026/27?

Full answer

Tax-free savings interest in the UK comes from a combination of three separate allowances that can all apply at once, meaning many people pay no tax on savings interest even outside an ISA. **The Personal Savings Allowance (PSA)** The PSA lets you earn a set amount of savings interest tax-free each year, depending on your Income Tax band: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and £0 (no PSA at all) for additional-rate taxpayers. Interest above your PSA is taxed at your marginal Income Tax rate -- 20%, 40% or 45% (or the equivalent Scottish rates for Scottish taxpayers). **The starting rate for savings** Separately, there is a 0% starting rate for savings covering up to £5,000 of savings interest, but this only applies to the extent your other (non-savings) income is low -- for every £1 of other income above your Personal Allowance, £1 of the starting rate band is lost, so it tapers away completely once other income reaches roughly £17,570 (Personal Allowance £12,570 plus the £5,000 starting rate band). In practice, this band mainly benefits people with low earnings or pension income and relatively higher savings balances, such as some retirees. **ISAs are separate and unlimited** Interest earned within a Cash ISA, Stocks & Shares ISA, or Innovative Finance ISA is entirely tax-free and does NOT use up your Personal Savings Allowance or starting rate for savings -- it sits completely outside the income tax system, up to the £20,000 annual ISA subscription limit. **Worked example: basic-rate taxpayer** A basic-rate taxpayer with £30,000 of salary and £1,400 of savings interest from a regular savings account pays no tax on the first £1,000 (PSA), then 20% tax on the remaining £400, i.e. £80 in tax -- collected either through a Self Assessment return or, more commonly now, automatically through an adjustment to their PAYE tax code, since banks report interest information directly to HMRC. **Worked example: retiree using the starting rate for savings** A retiree with £13,000 of pension income and £4,000 of savings interest has £430 of their Personal Allowance still unused by pension income (£13,570 combined threshold minus £13,000 pension, roughly), so a small slice of interest is covered by the remaining Personal Allowance, and most of the rest falls within the £5,000 starting rate for savings band (tapered slightly because their other income already exceeds £12,570), meaning they likely pay no tax at all on the interest, or a very small amount. **Practical tip** If your savings interest across all these allowances is likely to exceed the tax-free thresholds, consider maximising ISA contributions first, since ISA interest never counts towards your PSA or triggers a tax liability, regardless of how much interest it generates.

Try the calculator

More answers

• What is the Personal Savings Allowance in 2026/27?
• What is the starting rate for savings?