What is the personal savings allowance?
The personal savings allowance (PSA) allows most savers to earn up to £1,000 in interest through their savings account without paying any tax. Here’s how it works...
Key takeaways
The PSA allows individuals to earn up to £1,000 interest on their savings without paying tax
Savings in tax-free accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments accounts (NS&I) do not count towards your PSA
If you’ve paid too much tax on savings interest and haven’t fully utilised your PSA, you may be due a refund
What is the personal savings allowance?
The PSA was introduced in 2016 to allow individuals to earn a certain amount of interest on their savings without having to pay tax. This tax year, the amount of interest you can earn tax-free through your PSA depends on your income tax band.
Basic-rate taxpayers: who fall into the 20% tax bracket, can earn up to £1,000 in interest without paying tax.
Higher-rate taxpayers: in the 40% bracket, have a reduced allowance of £500.
Additional-rate taxpayers: in the 45% tax bracket, do not benefit from the PSA and must pay tax on all their savings interest.
For a closer look at the taxpayer thresholds, you can visit GOV.UK.
Rate of tax | Gross annual income (not from savings) | Interest you can earn on savings without paying tax |
|---|---|---|
Basic rate taxpayer | £12,571 - £50,270 | Up to £1,000 |
Higher rate taxpayer | £50,271 - £125,140 | Up to £500 |
Additional rate taxpayer | Over £125,140 | No savings interest allowance |
How does the personal savings allowance work?
How much tax you pay with the PSA depends on how much you earn, as you can see below:
How does personal savings allowance work?
Basic rate taxpayer
If you’re a basic-rate taxpayer with an annual income of £30,000. If you receive £400 in savings interest over the tax year, you won't pay any tax on this interest thanks to your £1,000 allowance.
However, should your savings interest reach £1,250, you'll need to pay the standard 20% tax on the £250 that exceeds your allowance.
Higher rate taxpayer
For a higher-rate taxpayer earning £70,000, interest of £300 tax-free within the £500 allowance. But if the interest climbs to £800, a 40% tax must be paid on the £300 surplus.
If the interest you earn exceeds the personal allowance, then any tax you owe will be paid to HM Revenue and Customs (HMRC) through your tax code.
Additional rate taxpayer
Those in the additional-rate tax bracket, earning above £125,140, are not eligible for the PSA and they are required to pay tax on all savings interest they earn.
How do I claim the personal savings allowance?
You don’t need to claim the PSA, interest is paid without tax being deducted up front. If you do owe tax on interest that exceeds your allowance, it's collected by HMRC through your tax code or, for self-assessment taxpayers, through the self-assessment tax return process.
Where does the personal savings allowance apply
The PSA applies to the interest you earn on a wide range of financial products, including:
Bank accounts and building society accounts
Savings and credit union accounts
Unit trusts, investment trusts, and open-ended investment companies
Trust funds
PPI interest on payouts
Government or company bonds
Life annuity payments
Certain life insurance contracts
When can I not use the PSA?
The PSA does not cover accounts which already offer tax breaks. These include individual savings accounts (ISAs) or premium bonds.
ISAs offer a generous tax-free threshold of £20,000, per tax year, and no tax is paid on the interest. As interest rates rise, it's possible to reach the PSA threshold more quickly, making ISAs an efficient way to save without worrying about tax implications.
What happens if I pay too much tax on my savings interest?
If you've paid more tax on your savings interest than necessary and haven't fully used your PSA, you may be eligible for a refund.
To claim this, you can fill out the government form R40, and typically, it takes about six weeks to process. Non-UK residents with UK accounts can claim their personal allowances using the R43 form.
What’s the difference between the personal savings allowance and the personal tax allowance?
While the PSA specifically relates to the tax on savings interest and varies according to your income tax band, the personal tax allowance is the amount of income you can earn before paying income tax. For the 2024/25 tax year, this is set at £12,570.
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