Starting Rate for Savings vs Personal Savings Allowance: 2026/27 Comparison
The starting rate for savings is a 0% tax band specifically for savings income, available to people with low non-savings income, while the Personal Savings Allowance is a separate tax-free amount of savings interest available more broadly based on your overall tax band. The two can stack together, allowing some low earners to receive a substantial amount of savings interest completely tax-free. Here is how they compare for 2026/27.
Key facts for 2026/27
- The starting rate for savings applies a 0% tax rate to a band of savings income, but it is reduced by £1 for every £1 that your non-savings income (wages, pension, self-employment profit, and so on) exceeds your Personal Allowance of £12,570 — check gov.uk for the current width of this band, as it is not fixed within this comparison's verified rate set.
- The Personal Savings Allowance (PSA) is a separate tax-free amount of savings interest available to basic-rate and higher-rate taxpayers, with no PSA at all available to additional-rate taxpayers — check gov.uk for the current PSA amounts for each tax band, as these are not fixed within this comparison's verified rate set.
- The Personal Allowance itself is £12,570 for 2026/27, and the basic-rate band extends up to £50,270 of total income before the higher rate of 40% applies.
- The starting rate for savings and the Personal Savings Allowance are entirely separate allowances that can both apply to the same person in the same tax year — savings income is first set against the Personal Allowance (if unused), then the starting rate for savings band, then the Personal Savings Allowance, before any remaining savings interest is taxed at the normal rate for your tax band.
- Because the starting rate for savings tapers away as non-savings income rises above the Personal Allowance, it is most valuable to people with little or no other income — for example, some retirees relying mainly on savings interest and a modest pension, or people who have taken a career break.
Side-by-side comparison
| Feature | Starting Rate for Savings | Personal Savings Allowance |
|---|---|---|
| What it is | A 0% tax band specifically for savings income | A tax-free amount of savings interest set against your marginal rate |
| Who can use it | Anyone whose non-savings income is low enough that the band has not been fully used up by other income | Basic-rate and higher-rate taxpayers — not available to additional-rate taxpayers |
| How it tapers/reduces | Reduced £1 for £1 as non-savings income exceeds the Personal Allowance of £12,570 | Reduces (or disappears entirely) as you move from basic-rate to higher-rate to additional-rate taxpayer status |
| Order applied in the calculation | Applied after the Personal Allowance, before the Personal Savings Allowance | Applied after the starting rate for savings band |
| Best suited to | Low earners with little non-savings income and meaningful savings interest | Basic-rate and higher-rate taxpayers generally, regardless of income mix |
| Can be used alongside the other | Yes — the two allowances stack together for eligible individuals | Yes — the two allowances stack together for eligible individuals |
| Available to additional-rate taxpayers | No — non-savings income at this level exceeds the Personal Allowance too substantially for any of the band to remain | No — the Personal Savings Allowance is £0 for additional-rate taxpayers |
How the starting rate for savings actually works
The starting rate for savings gives a 0% tax rate on a band of savings income for people whose non-savings income (earnings, pension income, self-employment profit, rental income, and so on) is low. The band works on a sliding basis: it is reduced by £1 for every £1 that your non-savings income exceeds your Personal Allowance of £12,570 for 2026/27. This means someone with no non-savings income at all can use the full starting rate for savings band against their savings interest, while someone whose non-savings income already exceeds the Personal Allowance by more than the width of the band loses it entirely.
Because the band tapers away relatively quickly as non-savings income rises, it is most relevant to people with low overall income — for example, someone with a small part-time wage or a modest pension, topped up by meaningful savings interest, or someone taking a career break or working reduced hours. Higher earners in full-time work almost always have non-savings income well in excess of the point where the starting rate for savings band disappears entirely.
The exact width of the starting rate for savings band, and therefore exactly how much non-savings income can be earned before it disappears entirely, should be checked at gov.uk, since it is not fixed within this comparison's verified rate set.
How the Personal Savings Allowance works alongside it
The Personal Savings Allowance is a separate, simpler allowance: a fixed amount of savings interest that basic-rate taxpayers can receive completely tax-free each year, with a smaller fixed amount available to higher-rate taxpayers, and no allowance at all for additional-rate taxpayers. Unlike the starting rate for savings, the PSA does not taper gradually — it simply depends on which tax band your total income falls into, with the full basic-rate PSA amount available to anyone whose total income keeps them a basic-rate taxpayer, a smaller higher-rate PSA amount for higher-rate taxpayers, and nothing at all once you become an additional-rate taxpayer.
The PSA applies after the starting rate for savings band has already been used, meaning it is available on top of any 0% starting rate band a lower earner might also benefit from — the two are genuinely separate and stackable, not alternatives to choose between.
Check gov.uk for the current exact Personal Savings Allowance amounts for basic-rate and higher-rate taxpayers for 2026/27, since these figures are not fixed within this comparison's verified rate set.
How a low earner can stack both allowances
For someone with little or no non-savings income, savings interest can potentially be received tax-free through three layers stacking together: first, any unused Personal Allowance (£12,570 for 2026/27) that has not been absorbed by non-savings income can be set against savings interest; second, the starting rate for savings band (0% rate) applies to further savings interest, to the extent it has not been reduced by non-savings income; and third, the Personal Savings Allowance applies on top of that, giving a basic-rate taxpayer a further tax-free amount of savings interest.
This stacking effect means some low earners — commonly retirees with a modest income and meaningful savings, or people between jobs or on a career break — can receive a genuinely substantial total amount of savings interest each year without paying any Income Tax on it at all, even though each individual allowance on its own might seem modest.
Anyone in this position should calculate their own specific figures carefully, working through the Personal Allowance, then the current starting rate for savings band width (adjusted for their own non-savings income), then the current Personal Savings Allowance for their tax band, using the current gov.uk figures for each, rather than assuming a single headline number applies to their situation.
Verdict
The starting rate for savings and the Personal Savings Allowance are genuinely separate, stackable allowances rather than alternatives — understanding how they interact matters most for people with low non-savings income and meaningful savings interest, who can potentially combine both (plus any unused Personal Allowance) to receive a substantial amount of interest completely tax-free.
Higher earners in full-time work will typically find the starting rate for savings has tapered away entirely, leaving only the Personal Savings Allowance (and, for additional-rate taxpayers, no allowance at all) to shelter their savings interest.
Because the exact figures for both allowances are reviewed periodically, anyone relying on this stacking effect for tax planning — particularly retirees managing a mix of pension and savings income — should check the current gov.uk figures each tax year rather than assuming prior-year amounts still apply.