How does the Personal Savings Allowance work?
The Personal Savings Allowance lets you earn a certain amount of interest on your savings each year without paying tax on it. The size of your allowance depends on whether you are a basic-rate or higher-rate taxpayer, and additional-rate taxpayers do not get one. It is applied automatically.
See everything you may qualify for — benefits, grants, reductions and reliefs — in about 3 minutes. Free to check.
Check what you're owed →The Personal Savings Allowance was introduced so that most people pay no tax on the interest from ordinary savings accounts. Your tax band determines how much interest you can earn tax-free: basic-rate taxpayers get the largest allowance, higher-rate taxpayers get a smaller one, and additional-rate taxpayers get none at all.
Interest from most savings accounts counts towards the allowance, while interest from ISAs does not, because ISA interest is already tax-free and sits outside this calculation entirely. For the vast majority of savers, the allowance means there is nothing extra to do — banks no longer deduct tax from interest, and HMRC collects any tax due through your tax code if you go over.
With higher interest rates, more people are earning enough interest to approach or exceed their allowance, so it is worth understanding where you stand. If you do owe tax on savings interest, it is usually handled automatically, but checking your position helps you avoid surprises and plan where to hold your savings.
How to work out your Personal Savings Allowance
- Identify your tax band. Work out whether you are a basic-rate, higher-rate or additional-rate taxpayer, as this sets the size of your allowance.
- Add up taxable interest. Total the interest from your savings accounts, excluding any interest earned inside ISAs.
- Compare to your allowance. Check whether your taxable interest is within or above the allowance for your band.
- Let HMRC collect any tax. If you exceed your allowance, HMRC typically adjusts your tax code automatically, but check it is correct.
Key figures (official sources)
- £1,000Personal Savings Allowance — basic-rate taxpayersSource: GOV.UK — Tax on savings interest (checked 2026-06-28)
- £500Personal Savings Allowance — higher-rate taxpayersSource: GOV.UK — Tax on savings interest (checked 2026-06-28)
- £0Personal Savings Allowance — additional-rate taxpayersSource: GOV.UK — Tax on savings interest (checked 2026-06-28)
Frequently asked questions
- Does ISA interest use up my allowance?
- No. Interest earned in an ISA is already tax-free and sits outside the Personal Savings Allowance, so it does not count towards it.
- Do additional-rate taxpayers get an allowance?
- No. Additional-rate taxpayers do not receive a Personal Savings Allowance, so their savings interest is taxable from the first pound.
- How is tax collected if I go over?
- HMRC usually collects any tax due on savings interest through an adjustment to your tax code rather than asking you to pay it separately.
- Do banks deduct tax from my interest?
- No. Banks pay interest without deducting tax. Any tax owed above your allowance is dealt with by HMRC afterwards.
MoneyFinder is an independent sign-posting service that helps you find financial support you may be entitled to. We are not a government body and do not provide financial advice. Figures are taken from the official sources cited above and were correct when last checked — always confirm current details on the linked GOV.UK pages.