The Personal Savings Allowance for 2027/28 — unchanged from 2026/27, but still worth checking given persistently higher savings rates.
Personal Savings Allowance — 2027/28
| Taxpayer | Personal Savings Allowance |
|---|---|
| Basic rate (income £12,571–£50,270) | £1,000 |
| Higher rate (income £50,271–£125,140) | £500 |
| Additional rate (income over £125,140) | £0 |
At What Savings Level Do You Breach the PSA?
| Savings rate | Basic rate (breach at) | Higher rate (breach at) |
|---|---|---|
| 3.5% | £28,571 | £14,286 |
| 4.0% | £25,000 | £12,500 |
| 4.5% | £22,222 | £11,111 |
| 5.0% | £20,000 | £10,000 |
Above these thresholds, interest becomes taxable.
Tax on Savings Interest Above the PSA
| Interest earned | Taxpayer | Taxable amount | Tax rate | Tax owed |
|---|---|---|---|---|
| £1,500 | Basic rate | £500 | 20% | £100 |
| £1,500 | Higher rate | £1,000 | 40% | £400 |
| £1,500 | Additional rate | £1,500 | 45% | £675 |
What Counts as Savings Interest
The PSA covers interest from:
- Easy-access savings accounts
- Fixed-rate bonds and term deposits
- Current account credit interest
- Cash in a stocks and shares account (held as cash, not invested)
- Government gilts (interest element)
- Peer-to-peer lending interest (reported separately but counts)
The PSA does not cover:
- Interest from ISAs — completely separate and always tax-free
- NS&I Premium Bond prizes — these are specifically tax-free regardless of the PSA
- Dividends — covered by the separate £500 dividend allowance
Joint Savings Accounts
Interest on a joint savings account is split 50/50 between account holders for tax purposes — unless you notify HMRC of a different split (e.g. using Form 17 if the split genuinely reflects your beneficial ownership). Each holder uses their own PSA against their half of the interest. A couple where one is a basic rate taxpayer (£1,000 PSA) and one is a higher rate taxpayer (£500 PSA) can shelter more interest by ensuring the account is weighted towards the basic rate taxpayer.
Avoid Tax with a Cash ISA
Interest within an ISA is completely tax-free — no PSA limit applies. If your savings generate more than £1,000/year in interest (basic rate) or £500 (higher rate), consider moving savings into a Cash ISA:
| Action | Tax on £30,000 savings at 4.5% (= £1,350/year) |
|---|---|
| All in standard savings account (basic rate taxpayer) | £350 interest taxed at 20% = £70/year |
| All in Cash ISA | £0 |
How HMRC Collects Tax on Savings Interest
Banks and building societies report interest paid to HMRC annually. You do not need to contact HMRC proactively in most cases — HMRC adjusts your PAYE tax code to collect the underpayment, which is reflected in the following year’s tax code as a lower personal allowance.
If you complete a Self Assessment return, declare savings interest in the return for the year it was received. The tax is collected via the Self Assessment calculation.
If your savings interest is more than £10,000 in a year, HMRC may require you to register for Self Assessment.
Starting Rate for Savings (Low Earners)
If your non-savings income is below £17,570, you may get an extra £5,000 of savings interest at 0%:
| Non-savings income | Starting rate band remaining |
|---|---|
| £12,570 or less | Up to £5,000 at 0% |
| £14,000 | £3,570 at 0% |
| £17,570 or above | £0 (no starting rate band) |
Combined with the PSA, a retiree with a small pension (under £12,570) could earn up to £6,000 of interest tax-free — and someone with no other income could earn up to £18,570 in savings interest before paying any tax (personal allowance £12,570 + starting rate £5,000 + PSA £1,000).