Answers · UK 2025/26
How much savings interest is tax-free on a £120,000 salary in 2026/27?
On a £120,000 salary for 2026/27 you are a higher-rate taxpayer, so your Personal Savings Allowance is £500, not £1,000. You can earn £500 of savings interest tax-free; interest above that is taxed at 40%, and your Personal Allowance is also being tapered at this income.
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The Personal Savings Allowance (PSA) depends on your tax band. For 2026/27 basic-rate taxpayers get £1,000 of tax-free savings interest, higher-rate taxpayers get £500, and additional-rate taxpayers get nothing. On a £120,000 salary you are a higher-rate taxpayer, since the higher-rate threshold is £50,270 and the additional-rate threshold is £125,140, so your PSA is £500. That means the first £500 of interest from savings accounts, current accounts and many bonds is tax-free, and interest above £500 is taxed at your 40% higher rate. At this income you are also inside the £100,000 to £125,140 Personal Allowance taper band, where the Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000 -- and savings interest counts towards adjusted net income, so a large amount of taxable interest on a £120,000 salary could push you further into the taper and increase your effective marginal rate on that interest well above the headline 40%. Interest earned inside a cash ISA or stocks and shares ISA is always completely tax-free, does not use any of your PSA, and does not count towards adjusted net income for the Personal Allowance taper, making ISAs especially valuable for higher earners in this income band. Use the Savings Interest calculator to work out how much of your interest is taxable at the higher rate.
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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.