Reviewed by Mustafa Bilgic
Founder, WebCalculator
The Personal Savings Allowance, starting rate for savings and Income Tax rates are taken from HMRC for 2026/27. ISA interest is tax-free. Estimates only, not tax advice.
Most people can earn some savings interest tax-free thanks to the Personal Savings Allowance. Enter your salary and your interest to see how much of it is covered and how much tax, if any, you owe.
Per tax year · outside an ISA
Savings interest outside an ISA is taxable, but most people pay nothing because of two allowances. The Personal Savings Allowance (PSA) lets a basic-rate taxpayer earn £1,000 of interest tax-free, a higher-rate taxpayer £500, while additional-rate taxpayers get nothing. On top of that, a starting rate for savings of up to £5,000 is taxed at 0% — but it shrinks £1 for every £1 your non-savings income exceeds the £12,570 Personal Allowance, so it only helps low earners.
| Taxpayer | Personal Savings Allowance |
|---|---|
| Basic rate (20%) | £1,000 tax-free |
| Higher rate (40%) | £500 tax-free |
| Additional rate (45%) | £0 |
Banks report your interest to HMRC, which usually collects any tax due by adjusting your tax code the following year, or through Self Assessment if you complete a return. Interest is taxed at your marginal rate — 20%, 40% or 45% — once allowances are used. To avoid the tax altogether, hold savings in a cash ISA within the £20,000 allowance. Check your overall position on the income tax calculator.
The Personal Savings Allowance lets a basic-rate taxpayer earn £1,000 of interest tax-free, a higher-rate taxpayer £500, and additional-rate taxpayers nothing. Low earners may also get up to £5,000 tax-free under the starting rate for savings.
It is a £5,000 band of savings interest taxed at 0%. But it reduces £1 for every £1 your non-savings income (salary, pension) exceeds the £12,570 Personal Allowance, so it disappears once your other income reaches £17,570.
Banks report your interest to HMRC, which usually collects any tax by changing your tax code the following year. If you complete Self Assessment, it's included on your return. The interest is taxed at your marginal rate once allowances are used.
No. Interest earned inside a cash ISA or stocks and shares ISA is completely tax-free and does not use up your Personal Savings Allowance. You can pay up to £20,000 a year into ISAs in 2026/27.