The personal savings allowance explained

How much interest is tax free?

The final column assumes an interest rate of 4% to show roughly how large a pot fills each allowance. It is an illustration, not a rate we are quoting: use your own account's rate, because the allowance is a cash amount of interest and nothing to do with the balance itself. Bands shown are the 2026/27 England, Wales and Northern Ireland thresholds. Scottish taxpayers use the UK bands for this purpose even though their earnings are taxed on Scottish bands.

What is the starting rate for savings?

A separate allowance of up to £5,000, aimed at people whose other income is small. Every £1 of other income above the personal allowance reduces it by £1, so it runs out completely once your other income reaches £17,570, which is £12,570 plus £5,000. Someone with a £14,000 pension and a large savings balance still has £3,570 of starting rate left, plus the £1,000 personal savings allowance on top. Add the personal allowance itself and someone with no employment income can take a large amount of interest without paying tax on it. Retired people and anyone on a career break are the ones who most often miss it.

How is tax on savings interest collected?

Banks and building societies stopped deducting tax at source in 2016, so interest is paid gross. They report what they paid you to HMRC, which then collects any tax due by adjusting your tax code, usually a year in arrears. That is why a code can suddenly change with no change in your job: HMRC has learned about savings interest and is collecting tax on it through payroll. If your code moves unexpectedly, decode it with the tax code checker before assuming it is an error, and see the tax code guide for what the letters mean.

Where the savings allowance interacts with everything else

• Interest counts as income for band purposes. It can be what pushes you from basic to higher rate, which then halves the allowance itself.
• ISA interest is outside all of this. It is not taxable and does not use up the allowance, which is what makes an ISA worth considering once your interest approaches the limit.
• Dividends have their own allowance. £500 for 2026/27, taxed separately at dividend rates. The dividend tax calculator handles that side.
• It affects adjusted net income. Savings interest counts, so it can pull you into the £100,000 taper or the Child Benefit charge even when your salary alone would not. Work out the real figure with the adjusted net income calculator.

This page does not tell you where to put your money. We publish tax arithmetic, not product recommendations, and we take no commission. If your situation is complicated, particularly around trusts, joint accounts or income from property, these allowances interact in fiddly ways and are worth taking to an accountant.

Related guides

All 10 guides are listed on the guides index, and every calculator on the home page.