Personal Savings Allowance 2026 — Everything You Need to Know

Introduced in 2016, the Personal Savings Allowance (PSA) was designed to take 95% of UK savers out of paying any tax on their interest. For a long time, it worked perfectly.

But today, with the Bank of England base rate heavily influencing high street savings accounts, the PSA is suddenly the most important—and most breached—tax allowance in the UK. If you have any significant cash savings in 2026, understanding your PSA is critical to avoiding an unexpected tax bill.

Here is a complete, plain English guide to how the Personal Savings Allowance works in the 2026/27 tax year.

What Is the Personal Savings Allowance (PSA)?

The Personal Savings Allowance is a tax-free buffer. It dictates exactly how much money you can earn in savings interest each year before you have to pay Income Tax on it.

Crucially, the allowance is not a fixed number for everyone. The government believes that higher earners should pay more tax on their wealth, so your PSA is determined entirely by your Income Tax band.

How Much Is the PSA in 2026?

Your allowance depends on your total taxable income (which includes your salary, pension, bonuses, and the savings interest itself).

• Basic rate taxpayers (20%): You get a £1,000 Personal Savings Allowance. You must earn under £50,270 in total to qualify.
• Higher rate taxpayers (40%): You get a £500 Personal Savings Allowance. This applies if your total income is between £50,271 and £125,140.
• Additional rate taxpayers (45%): You get £0 allowance. If you earn over £125,140, every penny of interest is taxed.

What Counts Towards Your PSA?

Almost all interest generated by cash savings counts towards this limit. This includes:

• Interest from regular bank and building society accounts
• Interest from fixed-rate bonds and savings accounts
• Interest from credit union accounts
• Interest from peer-to-peer lending
• Interest on government or company bonds (gilts)

What Does NOT Count Towards Your PSA?

This is where smart financial planning comes in. There are two major exceptions that HMRC completely ignores when calculating your savings interest:

1. ISAs (Individual Savings Accounts): Whether it's a Cash ISA, Stocks & Shares ISA, or Lifetime ISA, any interest or growth generated inside this wrapper is 100% tax-free and does not eat into your £1,000 or £500 PSA.
2. Premium Bonds: Any "winnings" from NS&I Premium Bonds are entirely tax-free and do not count towards your PSA.

How Do You Pay the Tax If You Go Over?

If you earn more interest than your PSA allows, you owe tax on the excess amount at your normal marginal rate (20% or 40%). But how do you actually pay it?

If you are employed or receive a pension, you do not need to do anything. Your bank automatically reports your interest to HMRC at the end of the tax year. HMRC will then estimate your interest for the following year and change your tax code (usually by lowering your Personal Allowance) to collect the tax directly from your monthly payslip.

If you fill out a Self Assessment tax return, you must declare your total savings interest on your return, and the tax owed will be calculated as part of your final bill.

Frequently Asked Questions

Is the Personal Savings Allowance per account or per person?

It is strictly per person. You cannot open three savings accounts to get three £1,000 allowances. HMRC calculates the total combined interest across all your non-ISA accounts.

What if I share a joint account with my partner?

Interest from a joint account is split exactly 50/50 between both account holders for tax purposes. If the account generates £1,000 in interest, £500 counts towards your PSA, and £500 counts towards your partner's PSA.

If my interest pushes me into the higher tax bracket, does my PSA drop?

Yes. If your salary is £49,900 (basic rate) and you earn £1,000 in interest, your total income becomes £50,900. This pushes you into the higher rate bracket, meaning your PSA instantly drops from £1,000 to £500, creating an immediate tax liability. This is a common trap known as the savings tax cliff-edge.