Personal Savings Allowance UK 2025
Your complete guide to the Personal Savings Allowance for 2025/26 — how much you can earn tax-free, what counts, and how to make the most of your savings.
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) is the amount of interest you can earn on savings each tax year without paying income tax on it. It was introduced by the UK government on 6 April 2016 to simplify savings taxation and remove the requirement for banks to deduct tax at source.
Before April 2016, banks automatically deducted 20% tax from savings interest and paid it to HMRC. Non-taxpayers had to reclaim this by completing an R85 form. The PSA replaced this system with gross interest payments and a simple annual tax-free allowance.
PSA Rates for 2025/26
The amount of your Personal Savings Allowance depends on which income tax band you fall into for 2025/26:
| Taxpayer Status | 2025/26 Income Range | Personal Savings Allowance | Tax Rate on Excess |
|---|---|---|---|
| Basic Rate Taxpayer | £12,571 – £50,270 | £1,000 | 20% |
| Higher Rate Taxpayer | £50,271 – £125,140 | £500 | 40% |
| Additional Rate Taxpayer | Over £125,140 | £0 | 45% |
How Much Has the PSA Been Worth Since 2016?
The PSA was introduced when interest rates were very low. With the Bank of England base rate at around 5% in 2024-25, and many savings accounts offering 4–5% interest, the PSA becomes more meaningful for savers with larger balances.
| Savings Balance | Interest Rate | Annual Interest | PSA Remaining (Basic Rate) | Tax Owed |
|---|---|---|---|---|
| £10,000 | 4.5% | £450 | £550 remaining | £0 |
| £20,000 | 4.5% | £900 | £100 remaining | £0 |
| £25,000 | 4.5% | £1,125 | PSA used | £25 (20% on £125) |
| £50,000 | 4.5% | £2,250 | PSA used | £250 (20% on £1,250) |
| £100,000 | 4.5% | £4,500 | PSA used | £700 (20% on £3,500) |
PSA Calculator 2025/26
Find out how much of your Personal Savings Allowance you are using and what tax (if any) you owe.
What Counts Towards the PSA?
The following types of interest do count towards your Personal Savings Allowance:
- Interest from bank and building society savings accounts
- Interest from current accounts
- Interest from fixed-rate bonds and notice accounts
- Interest from NS&I Direct Saver, Income Bonds, and Investment Accounts
- Interest from peer-to-peer lending
- Interest from government gilts and corporate bonds
- Interest from credit union accounts
The following do not count towards the PSA and are always tax-free:
- Interest from any type of ISA (cash, stocks & shares, innovative finance, lifetime)
- NS&I Premium Bond prize winnings
- NS&I index-linked savings certificate returns
- HMRC repayment supplement on tax refunds
How Banks Report to HMRC
UK banks, building societies, and other financial institutions are legally required to report the total interest paid to each customer to HMRC each year. This reporting happens automatically through the Common Reporting Standard (CRS) and HMRC's own data collection systems.
You do not need to tell your bank how much PSA you have — they simply report the gross interest, and HMRC determines whether you owe tax based on all your income and allowances.
How Tax on Savings Interest is Collected
HMRC collects tax on savings interest through two main routes:
- PAYE code adjustment: If you are an employee or pensioner, HMRC will reduce your PAYE tax code to collect savings tax through your regular wage or pension payments. If you owe £300 in savings tax and are a 20% taxpayer, your allowance may be reduced by £1,500 (£300 ÷ 0.20).
- Self Assessment: If you complete a Self Assessment return, you declare savings interest on the return and pay the tax directly. HMRC requires Self Assessment if your savings interest exceeds £10,000 in a year.
Effect of Savings on Your PSA Threshold
This is an often-overlooked risk: if your savings generate enough interest to push your total income over the higher rate threshold (£50,270), two things happen simultaneously:
- The income above £50,270 is taxed at 40% instead of 20%
- Your PSA drops from £1,000 to £500
Total income: £49,000 + £2,250 = £51,250 (above £50,270 threshold)
James is now a higher rate taxpayer. His PSA drops to £500.
Taxable interest: £2,250 − £500 = £1,750 taxed at 40% = £700 tax
Had he put £30,000 in an ISA, his interest from ISA (£1,350) would be tax-free and his non-ISA interest (£900) would be within his PSA — total savings tax: £0.
Strategies to Maximise Your Savings Tax Efficiency
ISA First
Always use your £20,000 annual ISA allowance before placing savings in taxable accounts. ISA interest is always tax-free with no upper limit. Prioritise filling your ISA each year.
Use Your PSA
Once your ISA is full, place additional savings in the best-rate non-ISA account. Your PSA protects the first £1,000 (or £500) of interest from tax each year.
Premium Bonds
NS&I Premium Bonds offer completely tax-free prize winnings. Hold up to £50,000 per person. Particularly valuable for higher and additional rate taxpayers with no or limited PSA.
Spread Across Partners
If you are married or in a civil partnership, use both partners' PSAs. A couple where both are basic rate taxpayers gets £2,000 combined PSA. Split savings between both names to double the allowance.
Watch Band Crossover
Monitor whether large savings interest could push you over £50,270 total income, reducing your PSA from £1,000 to £500 and triggering 40% tax. If close, consider sheltering more in ISAs.
Fixed-Rate Bond Timing
If you invest in a fixed-rate bond that matures in a future tax year, the interest may all be received in one year. Ensure your PSA and ISA allowance for that year can absorb it, or consider spreading across years.
Cash ISA vs High-Interest Account: Which Is Better?
| Feature | Cash ISA | High-Interest Savings Account |
|---|---|---|
| Tax on interest | None (always) | Tax above PSA |
| Interest rate | Sometimes slightly lower | Often slightly higher |
| Annual limit | £20,000/year contribution | No contribution limit |
| Cumulative balance | Unlimited (rolls up year to year) | Unlimited |
| Flexibility | Varies by product | Varies by product |
| Best for | Long-term savers, higher earners, growing balances | Short-term savings within PSA limit |
Joint Accounts and the PSA
For joint savings accounts, HMRC assumes the interest is divided equally between account holders — 50:50 — unless you can evidence a different arrangement. Each account holder then applies their own Personal Savings Allowance to their share of the interest.
This means a couple with a joint savings account where one partner is a basic rate taxpayer and one is a higher rate taxpayer will have a combined effective PSA of £750 (£500 + £500/2 applied to the basic rate partner = £500 + £250... actually, each applies their own PSA to their half). The basic rate partner applies £1,000 PSA to their £X share; the higher rate partner applies £500 PSA to their £X share.
Children's Savings and Tax
Children have their own Personal Allowance (£12,570) and PSA. For most children with modest savings, no tax will be due. However, there is an important anti-avoidance rule:
If a parent gifts money to a child under 18 and the interest from that gift exceeds £100 per parent per year, the excess is treated as the parent's income for tax purposes. This prevents parents from shifting large amounts into children's accounts to reduce their own tax bill.
Junior ISAs (up to £9,000 per year) are completely exempt from this rule — all growth inside a Junior ISA is tax-free regardless of who contributed.
Frequently Asked Questions
When was the Personal Savings Allowance introduced?
The Personal Savings Allowance was introduced on 6 April 2016 by the then Chancellor George Osborne as part of the Summer Budget 2015. At the same time, banks and building societies stopped deducting tax from savings interest at source, meaning all interest is now paid gross. The PSA rates have remained unchanged since introduction: £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Does the PSA apply to ISA interest?
No. ISA interest is completely separate from the Personal Savings Allowance. Interest earned within any ISA (cash, stocks and shares, lifetime, innovative finance) is always tax-free and does not count towards or reduce your PSA. The two allowances complement each other perfectly.
What happens if my savings income pushes me into a higher tax band?
If your combined income (salary + savings interest) exceeds £50,270, you become a higher rate taxpayer. This means: your PSA drops from £1,000 to £500, and the income above £50,270 is taxed at 40%. This can create a cliff-edge effect where earning slightly more interest actually costs significantly more in tax. To avoid this, consider holding more of your savings in ISAs to keep total income below the threshold.
How does the PSA work for joint savings accounts?
For joint savings accounts, HMRC assumes the interest is split equally between account holders (50:50) unless you declare otherwise. Each account holder applies their own PSA to their share. So if a couple earns £1,800 interest from a joint account, each is treated as earning £900. If both are basic rate taxpayers with a £1,000 PSA, neither owes any tax.
Can children benefit from the Personal Savings Allowance?
Yes, children have their own Personal Allowance and PSA. However, if parents gift money to a child and the resulting interest exceeds £100 per parent per year, HMRC treats that excess as the parent's income. Junior ISAs (up to £9,000/year) are completely exempt from this rule and all growth is tax-free.
Should I use an ISA or rely on my PSA?
For most savers, the best approach is to use both. Fill your ISA allowance first (£20,000/year) as ISA interest is always tax-free with no upper limit. Then use your PSA for any additional savings. As your savings grow over time, the tax-free ISA pot becomes increasingly valuable because interest compounds inside the ISA tax-free. Relying only on the PSA means that as your balance grows, so does your potential tax exposure.