Your Personal Savings Allowance Explained
How much savings interest you can earn tax-free and how to protect even more
Just like most other forms of income, you may need to pay tax on the interest you earn from saving. But there are plenty of legitimate ways to reduce that tax – often to zero.
One of the most useful tools is your personal savings allowance (PSA): a chunk of savings interest you can earn each year completely tax-free.
There are also other allowances and tax wrappers – like Zopa’s Cash ISA – that can help keep your tax bill low. We've put together this guide to walk you through the essentials, so you can make the most of what's available to you.
In this guide, you'll learn:
What the personal savings allowance is
How much personal savings allowance you get
How it works in practice
Whether you need to tell HMRC about your savings interest
Other ways to reduce your savings tax bill
How to protect even more of your savings from tax
What is the personal savings allowance?
The personal savings allowance (PSA) is the amount of interest you can earn on your savings each year without paying any tax on it. It applies to interest from things like bank accounts and savings accounts, but not to investment returns.
Your PSA resets at the start of each new tax year (6 April), so any unused allowance doesn't carry over.
How much personal savings allowance do I get?
The amount you get depends on whether you’re a basic-rate, higher-rate or additional-rate taxpayer. For most UK taxpayers that broadly means £1,000, £500 or £0, though tax bands differ in Scotland.
The majority of savers in the UK are basic-rate taxpayers, which means most people can earn up to £1,000 in savings interest before owing any tax at all. For context, you'd need roughly £20,000 sitting in a savings account earning 5% interest to get close to that limit.
How does the personal savings allowance work?
Let's say you're a basic-rate taxpayer with a PSA of £1,000.
If you earned £800 in savings interest this year, your tax bill on that interest is £0 – it falls entirely within your allowance.
If you earned £1,200 in savings interest, only the £200 above your allowance is taxable. At the basic rate of 20%, that's a tax bill of just £40.
As a higher-rate taxpayer with a PSA of £500:
If you earned £400 in savings interest, your tax bill is £0.
If you earned £800 in savings interest, the £300 above your allowance would be taxable at 40% – a bill of £120.
Are there other allowances that can reduce my savings tax bill?
Yes – and for lower earners especially, these can stack on top of your PSA to make a big difference.
Personal allowance
Your personal allowance is the total amount of income you can earn each year before paying any income tax – not just from savings, but from all sources combined.
Most people in the UK get a personal allowance of £12,570 each tax year, usually fully used up by their salary or pension. But if you earn less than £12,570 a year from work, pensions, or rental income, any remaining allowance can be set against your savings interest – meaning some or all of it could be completely tax-free.
Starting rate for savings
If your income from work, pensions, or rental income is under £17,570, you may qualify for what’s known as the starting rate for savings of up to £5,000. It’s an additional tax-free allowance specifically for savings interest, on top of your PSA.
The closer your income is to £12,570 (the personal allowance), the more of your starting rate for savings allowance you can use – it tapers down as your income goes above that threshold. For example, if your work income is £13,570 (£1,000 above the personal allowance), your starting rate for savings would be £4,000. At £17,570 or above, it reduces to zero.
In theory, if someone had very little work income and made full use of their personal allowance, starting rate for savings, and PSA, they could earn up to £18,570 in savings interest in a year completely tax-free.
Do I need to tell HMRC about my savings interest?
If your savings interest is within your tax-free allowances
There’s usually nothing you need to do.
If your interest exceeds your tax-free allowances
You may need to pay tax on it.
If you already complete a Self Assessment return, include it there.
If you don’t already complete a Self Assessment return, contact HMRC. They might be able to collect the tax through your tax code, or you might need to complete a Self Assessment.
The main thing to remember is that if you think tax is due and it’s not being collected, you must tell HMRC.
How can I protect more of my savings from tax?
If you're earning more in savings interest than your PSA covers – or you simply want the peace of mind of knowing your savings are completely sheltered from tax – an ISA is the most straightforward option.
ISAs
An ISA (Individual Savings Account) is a tax wrapper – an account that protects your savings or investments from tax entirely. Any interest you earn inside an ISA doesn't count towards your PSA, and you'll never owe tax on it.
You can save up to £20,000 into ISAs each tax year. The two most common types for savers are:
Cash ISA – works like a standard savings account, but interest is always tax-free. Zopa's Cash ISA lets you do exactly that, with added flexibility to withdraw your money without eating into your ISA allowance. Find out more about Zopa’s Cash ISA.
Stocks & Shares ISA – your money is invested, with any returns sheltered from tax. A good option if you're happy to take on some risk in exchange for potentially higher returns over the long term. Zopa’s Stocks & Shares ISA is designed with beginners in mind. As with all investments, though, your money could go down as well as up and you could get back less than you put in.
Pensions
Pension contributions also benefit from tax relief, and any growth inside your pension is sheltered from tax. You usually can't access your pension until you're 55, rising to 57 from 6 April 2028, so it's a long-term option rather than a flexible savings pot.
Grow your money with Zopa
Ready to make the most of your personal savings allowance? We’re chuffed to have won Best Regular Savings Provider and Best Savings App at Moneynet 2026.
Find out more about our savings, including Regular Saver and Cash ISA.
Looking for a way to grow your money over the long term? Explore our Stocks & Shares ISA.
