Answers · UK 2025/26
How much savings interest is tax-free on a £20,000 salary in 2026/27?
On a £20,000 salary for 2026/27 you are a basic-rate taxpayer, so your Personal Savings Allowance is the full £1,000. You can earn £1,000 of savings interest tax-free; interest above that is taxed at 20%. Interest inside an ISA is always tax-free and does not count towards the allowance.
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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 £20,000 salary you are a basic-rate taxpayer, since the higher-rate threshold is £50,270, so you get the full £1,000 PSA. That means the first £1,000 of interest from savings accounts, current accounts and many bonds is entirely tax-free, and interest above £1,000 is taxed at your 20% basic rate. With savings rates around 4% to 5%, you would need roughly £20,000 to £25,000 in ordinary savings before exceeding the £1,000 allowance. Because your salary of £20,000 is above the £17,570 limit (Personal Allowance plus £5,000) for the 0% starting rate for savings to apply, that separate allowance does not help here -- it would only be relevant if your non-savings income were lower. Interest earned inside a cash ISA or stocks and shares ISA is always tax-free and does not use any of your PSA, so building savings inside your £20,000 annual ISA allowance protects interest from tax even if you eventually exceed the £1,000 PSA. HMRC normally collects any tax due on interest above your allowance by adjusting your tax code, using figures banks report automatically -- you rarely need to do anything yourself. Use the Savings Interest calculator to work out how much of your interest is taxable.
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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.