What is the personal savings allowance?

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The Personal Savings Allowance (PSA) allows you to earn up to a certain amount of interest without paying tax each year. How much tax-free interest you can earn will depend on the tax band your salary falls into.

What is the benefit of a Personal Savings Allowance?

The Personal Savings Allowance (PSA) was introduced in April 2016. It was created to reduce how much tax UK savers would pay.

Before the PSA, tax was taken from your savings interest. After the change, you have a set amount of interest you can earn without paying tax.

How the Personal Savings Allowance works

If you’re a basic rate taxpayer, you can earn up to £1,000 a year in interest without having to pay tax.
If you are a higher rate taxpayer, you can earn £500 a year without paying tax. 
Additional rate tax payers don’t receive any allowance at all.

What counts towards your allowance?

Interest earned from the following will count towards your allowance:
Bank and building society accounts
National Savings and Investments
Government or company bond income interest distributions from authorised units, but not dividends
Annuity payments you’ve purchased
Accounts with credit unions.
Interest from ISAs does not count towards your PSA.

How does the Personal Savings Allowance affect me?

How much interest you can earn without paying tax depends on how much you earn. See how your wage affects your PSA below:
Your tax bracket Personal Savings Allowance
Basic rate (20%) Up to £1,000
Higher rate (40%) Up to £500
Additional rate (45%) Zero

What about any tax due on interest above my allowance?

If the interest you earn in a year is more than your Personal Savings Allowance, you need to pay tax.
Learn how to pay any tax due directly from HMRC

How does the Personal Savings Allowance affect ISAs?

ISAs are tax-free savings accounts. This means any interest you earn will not count towards your PSA. 

PSA and ISA example

If you are a basic rate tax player, you wouldn’t pay tax if you were to earn the following in one tax year:
£1,000 interest in an ISA
£500 interest in a different savings account
This is because the interest earned in an ISA does not count towards your PSA. 
The content on this page is for reference and is not financial advice.
For impartial financial advice, try MoneyHelper.