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Personal savings allowance

What is the personal savings allowance?

Thanks to the personal savings allowance most savers don’t pay tax on the interest they earn. Here’s how it works...

By Tim Heming

Published: 13 May 2022

A £1 coin is put back in the purse



The personal savings allowance (PSA) is a benefit that applies to almost every taxpayer in the UK. It makes it much less likely that you’ll pay any tax on the interest you earn from your savings. Our guide explains how the PSA works.

What is the personal savings allowance?

The personal savings allowance relates to the amount of interest you can earn on your savings each year without paying tax. 

The allowance differs depending on how much income you earn per year. You can earn interest on your savings of up to £1,000 tax-free each year if you're a basic-rate (20%) taxpayer. The amount you can earn in savings interest tax free is £500 per year if you're a higher-rate (40%) taxpayer. If you are on the additional rate, you’re not eligible for the personal savings allowance. 

The following table shows what your PSA is per year based on your annual gross income:


Rate of tax Gross annual income (not from savings) Interest you can earn on savings without paying tax
Basic rate taxpayer £17,571 - £50,270 Up to £1,000 
Higher rate taxpayer £50,271 - £150,000 Up to £500
Additional rate taxpayer Over £150,000 No savings interest allowance

How does the personal savings allowance work?

The following examples show how the PSA works in practice for different levels of taxpayer

Basic rate taxpayer: 

If you earn £30,000 a year and receive £400 in savings interest, you won’t pay any tax because it’s less than your £1,000 personal savings allowance. 

But if you receive £1,250 in savings interest, you’ll have to pay basic rate tax (20%) on the £250 that is over the threshold.

Higher rate taxpayer:

If you earn £70,000 a year and receive £300 in savings interest, you won’t pay any tax because it’s less than your £500 personal savings allowance.

But if you receive £800 in savings interest, you’ll have to pay higher rate tax (40%) on the £300 that is over the threshold. 

Additional rate taxpayer:

Additional rate taxpayers do not benefit from the personal savings allowance. If earning more than £150,000 each year, you’ll need to pay tax on your savings interest.

How do I claim the personal savings allowance? 

You don’t have to do anything to claim the allowance. Interest is now paid straight into your account with no tax taken off.  

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.

If you fill in a self-assessment tax return, then you will repay any tax owed this way instead.

Where does the personal savings allowance apply

The personal savings allowance applies to any interest you earn in a year, including interest from the following sources: 

  • Bank and building society accounts

  • Savings and credit union accounts

  • Unit trusts, investment trusts and open-ended investment companies

  • Peer-to-peer lending

  • Trust funds

  • Payment protection insurance (PPI) - interest on payouts

  • Government or company bonds

  • Life annuity payments 

The only type of interest which isn’t covered by the personal savings allowance is interest which is already tax-free, such as interest from individual savings accounts (ISAs) or Premium Bond winnings.

So, for example, if you win £100 from Premium Bonds and receive £100 in ISA interest, you’ll still have your £1,000 personal savings account on top to cover any other interest you might earn.

What’s the difference between the personal savings allowance and the personal tax allowance? 

The personal savings allowance is governed by your income and relates to how much tax you’ll pay on savings interest.

The personal tax allowance is the amount you’re allowed to earn in income before paying any tax. The personal tax allowance is set at £12,570 for 2022/23. 

How do I make a claim if I have paid too much tax on my savings interest? 

Taxation on savings interest is now done automatically, but you may be able to get a tax refund if you didn't make use of your full personal savings allowance and paid too much tax on your interest.  

If you’ve had tax deducted on any interest and you’ve not used all of your personal savings allowance, you can fill in government form R40 to claim a refund. It normally takes six weeks to get the tax back.

What is the starting rate for savings?

You can also receive up to £5,000 of interest from savings tax-free if your income from other sources is low. This is called your starting rate for savings and applies if non-savings income is less than £17,570 a year.

The more you earn from other income, for example your wages or pension, the less your starting rate for savings will be. Every £1 of other income above your personal allowance (£12,570) reduces your starting rate for savings by £1.  

Is there any benefit of still saving into cash ISAs?

ISAs are a special type of savings account that give you a higher tax-free threshold. You can save up to £20,000 in a cash ISA and you won’t need to pay any interest on your interest. 

Although you need a large amount of savings to use up your personal savings allowance, bear in mind that if interest rates start to rise, you will start to earn more interest on your deposits – and you could reach the £1,000 or £500 threshold more quickly.

This is where using your ISA allowance can be tax efficient. Just remember to always shop around to find the best possible interest rates. 

Compare savings accounts with MoneySuperMarket

MoneySuperMarket takes the hard work out of finding your next savings account by finding great deals from our panel of providers.

If you've got a lump sum to save, you can enter your savings deposit amount to compare deals. You can then order the results by the interest rate they offer.

If you’re not sure about what kind of savings account you need, our guide to how to choose the right savings account may help.