Answers · UK 2025/26
How much savings interest can I earn tax-free on a £40,000 salary in 2026/27?
On a £40,000 salary for 2026/27 you are a basic-rate taxpayer, so you get the full £1,000 Personal Savings Allowance. You can earn up to £1,000 of savings interest tax-free, plus interest inside an ISA is always tax-free and does not count towards the allowance.
Full answer
The Personal Savings Allowance (PSA) for 2026/27 lets basic-rate taxpayers earn £1,000 of savings interest tax-free, higher-rate taxpayers £500, and additional-rate taxpayers nothing. On a £40,000 salary you are firmly a basic-rate taxpayer, since the higher-rate threshold is £50,270, so you qualify for the full £1,000 PSA. That means the first £1,000 of interest from savings accounts, current accounts and many bonds is tax-free; interest above that is taxed at 20%. With savings rates around 4 to 5%, you would need roughly £20,000 to £25,000 in ordinary savings before exceeding the allowance. On top of the PSA, some lower earners also benefit from the starting rate for savings, which gives up to £5,000 of savings interest tax-free if your non-savings income is below £17,570, though at £40,000 your salary uses up that band so the starting rate does not apply. Interest earned inside a cash ISA or stocks and shares ISA is always tax-free and does not use your PSA, so moving savings into an ISA protects interest once you approach the £1,000 limit. If a pay rise pushes you over £50,270 your PSA halves to £500. HMRC usually collects any tax due on interest above the allowance by adjusting your tax code. Use the Savings Interest calculator to see how much of your interest is taxable.
Try the calculator
More answers
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.