In 2026/27, most people in the UK pay no tax on bank interest at all — the Personal Savings Allowance means basic rate taxpayers can earn up to £1,000 in savings interest tax-free each year. But if you have significant savings, or you are a higher earner, tax can apply. Here is exactly how it works.
Personal Savings Allowance 2026/27
| Taxpayer type | Total income | Personal Savings Allowance |
|---|---|---|
| Basic rate | Up to £50,270 | £1,000 |
| Higher rate | £50,271–£125,140 | £500 |
| Additional rate | Over £125,140 | £0 |
The PSA applies to:
- Current account interest
- Easy access savings account interest
- Fixed-rate bond interest
- Notice account interest
- NS&I account interest (excluding Premium Bond prizes)
- Peer-to-peer lending interest
It does not apply to ISA interest, which is always tax-free regardless of income.
How Much Interest Is Tax-Free at Current Rates?
With savings rates at around 4–5% in 2026/27, here is how much capital you can hold before breaching the PSA:
| PSA | At 4% interest | At 5% interest |
|---|---|---|
| £1,000 (basic rate) | £25,000 | £20,000 |
| £500 (higher rate) | £12,500 | £10,000 |
| £0 (additional rate) | £0 | £0 |
If your savings exceed these thresholds, you need to think about whether you have breached your PSA.
How HMRC Collects Tax on Savings Interest
Since April 2016, banks pay interest gross — no tax is automatically deducted. HMRC finds out about your interest in two ways:
- Banks report interest to HMRC automatically via the Common Reporting Standard
- You self-report on a Self Assessment return or via HMRC’s online account
Once HMRC knows you owe tax on savings interest, it usually collects it by adjusting your PAYE tax code for the following year. Your employer deducts the extra tax from your salary without you having to do anything.
If the amount is above approximately £10,000 in untaxed income, or if you are not in PAYE, HMRC will require you to register for Self Assessment.
Worked Examples
Example 1 — Sophie, basic rate taxpayer:
- Salary: £34,000
- Savings: £18,000 in an easy access account at 5% = £900 interest
- PSA: £1,000
- Tax on savings: £0 — £900 is within her £1,000 PSA
Example 2 — Tom, higher rate taxpayer:
- Salary: £62,000
- Savings: £40,000 in savings accounts earning 4.5% = £1,800 interest
- PSA: £500 (higher rate)
- Taxable interest: £1,800 − £500 = £1,300
- Tax at 40%: £520
- HMRC adjusts Tom’s PAYE code in the following year to collect £520
Example 3 — Patricia, additional rate taxpayer:
- Income: £145,000
- Savings: £80,000 earning 4.5% = £3,600 interest
- PSA: £0 (additional rate)
- Taxable interest: £3,600
- Tax at 45%: £1,620
- Patricia must file a Self Assessment return to declare and pay this
The Starting Rate for Savings: For Low Earners
If your non-savings income (salary, pension, self-employment) is below £17,570, you may qualify for the starting rate for savings — a 0% tax band that can shelter up to £5,000 of savings interest before Income Tax applies.
The starting rate band is reduced pound-for-pound by non-savings income above the personal allowance (£12,570). Someone with total non-savings income of £12,570 (personal allowance) gets the full £5,000 starting rate band.
| Non-savings income | Starting rate band available |
|---|---|
| £12,570 (personal allowance only) | Full £5,000 |
| £14,570 | £3,000 |
| £17,570 | £0 |
Combined with the £1,000 PSA, a person with only the personal allowance in non-savings income can earn £18,570 in savings interest tax-free.
ISAs: Always Tax-Free
Interest inside an ISA never counts towards your PSA and is always free of Income Tax — regardless of how much you earn. In 2026/27, the annual ISA allowance is £20,000. Building up savings inside an ISA is the simplest way to eliminate tax on savings interest permanently.
For additional rate taxpayers, who receive no PSA whatsoever, the ISA is especially valuable.
Premium Bond Prizes: Always Tax-Free
NS&I Premium Bond prizes are completely tax-free — no Income Tax, no CGT, and they do not count against your PSA. The maximum holding is £50,000 per person. For high earners with no PSA, Premium Bonds provide a tax-free return (probabilistic rather than guaranteed) on capital up to £50,000.
Do I Need to Tell HMRC About My Savings Interest?
In most cases, HMRC already knows from bank reporting. However:
- If your interest is within your PSA — no action needed
- If your interest exceeds your PSA and you are in PAYE — HMRC will usually adjust your tax code; check your coding notice
- If you are not in PAYE and your interest exceeds your PSA — you may need to register for Self Assessment
- If you think tax has been deducted in error — use Form R40 to reclaim
See our ISA allowance guide, R40 form guide, and savings in partner’s name guide.