Answers · UK 2025/26
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) lets you earn savings interest tax-free each year: £1,000 for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate. It applies to interest from banks, building societies and bonds outside an ISA. ISA interest is always tax-free and ignored by the PSA.
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Introduced in April 2016, the PSA reduced the number of savers needing to file Self Assessment by giving everyone a chunky interest allowance. For 2025/26 the limits are: basic-rate (£12,571–£50,270 total income) £1,000; higher-rate (£50,271–£125,140) £500; additional-rate (£125,141+) £0. Worked example: a higher-rate taxpayer earns £800 of bank interest. PSA covers £500 tax-free; the remaining £300 is taxed at 40% = £120. Savings interest is also covered by the £5,000 "starting rate for savings" — if your non-savings income is below £17,570, some or all of that £5,000 of interest is taxed at 0% before the PSA kicks in, perfect for pensioners with small State Pensions. Banks pay interest gross; HMRC reconciles via your tax code or Self Assessment if interest exceeds the PSA. ISAs (£20,000 annual subscription) generate fully tax-free interest that does not erode the PSA. Premium Bond wins are also outside the PSA. To plan: high-rate earners with significant cash should use ISAs first, then NS&I Premium Bonds, then taxable accounts in a non-earning spouse's name (married couples can transfer interest-bearing accounts freely under TCGA 1992 s.58).
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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.