Personal Savings Allowance
UK tax glossary · Last reviewed: April 2026
The Personal Savings Allowance (PSA) lets basic-rate taxpayers receive up to £1,000 of savings interest tax-free each year, and higher-rate taxpayers up to £500. Additional-rate taxpayers have no PSA. Interest above the allowance is taxed at your marginal rate.
The PSA applies to interest from bank accounts, building society accounts, corporate bonds, and peer-to-peer lending. It does not apply to ISA interest (already tax-free) or NS&I Premium Bonds prizes.
As interest rates have risen sharply since 2022, more savers are exceeding their PSA and incurring tax on savings for the first time. Higher-rate taxpayers with significant cash savings may benefit from holding savings inside an ISA.
Worked example
Higher-rate taxpayer with £40,000 in a 5% savings account. Annual interest: £2,000. PSA: £500. Taxable interest: £1,500. Tax at 40%: £600. Effective yield after tax: 3.5%. Moving to an ISA would save £600/year.
Common questions
How does HMRC collect tax on savings interest above the PSA?
For employed people, HMRC typically adjusts the tax code to collect the tax through PAYE. Self-employed and higher-income individuals declare it via Self Assessment.
Is NS&I Premium Bond winnings covered by the PSA?
No. Premium Bond prizes are not interest and are tax-free by their own statutory exemption, regardless of the PSA.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.