What is the personal savings allowance?
Answered 11 March 2026
Here is a comprehensive answer on the Personal Savings Allowance (PSA).
What the law says
The PSA is formally known in statute as the "savings allowance" and operates through a "savings nil rate" of 0% applied to qualifying savings income. It was introduced by Finance Act 2016, which inserted sections 12A and 12B into the Income Tax Act 2007 (ITA 2007), with effect from the tax year 2016-17 onwards.
The savings nil rate is set at 0% (ITA 2007, s.7(2)).
How it works (ITA 2007, s.12A): Where an individual's savings income exceeds the starting rate limit for savings, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate) on the savings income up to the amount of the individual's savings allowance (£A). If the savings income in excess of the starting rate limit (£X) is less than or equal to £A, the nil rate applies to all of it; if £X exceeds £A, the nil rate applies only to the lowest £A of it.
The amount of the savings allowance (ITA 2007, s.12B) depends on the individual's income band:
| Taxpayer type | Savings Allowance |
|---|---|
| Basic rate taxpayer (no higher or additional rate income) | £1,000 |
| Higher rate taxpayer (some higher rate income, no additional rate income) | £500 |
| Additional rate taxpayer (any additional rate income) | Nil |
The Treasury has a power to vary these amounts by regulations.
HMRC guidance / practice
HMRC describes the PSA as introducing tax-free income from savings interest from 6 April 2016, applying up to £1,000 for basic rate customers and £500 for higher rate customers, with no allowance for additional rate customers.
Important characterisation: Despite being called an "allowance", HMRC confirms that the PSA is technically a nil rate tax band, not a true allowance.
Interaction with the starting rate for savings: The PSA applies to savings income not already within the starting rate for savings band (up to £5,000 at 0% for low earners). The PSA is in addition to the starting rate for savings.
Deduction of tax at source: With the introduction of the PSA from 6 April 2016, the system of deducting tax at source from savings income was stopped. Banks and building societies continue to provide HMRC with details of gross untaxed savings income, and HMRC adjusts tax codes for PAYE customers where tax remains due after the PSA and unused personal allowances are applied.
Scottish and Welsh taxpayers: The PSA is unaffected by the Scottish and Welsh rates of income tax and is applied at the same rate for all taxpayers across the UK.
Citation sources
PART 1 Income tax Rate structure Savings allowance, and savings nil rate etc 4 1 ITA 2007 is amended in accordance with subsections (2) to (12). 2 In section 6(3)(a) (other rates: savings), after “starting rate for savings” insert “ and savings nil rate ” . 3 In section 7 (starting rate for savings)— a the existing text becomes subsection (1), b after that subsection insert— 2 The savings nil rate is 0%. , and c in the heading, after “starting rate for savings” insert “ and savings nil rate ” .
When calculating top slicing relief, the starting rate for savings and the personal savings allowance must also be considered. Despite their names, the personal savings allowance and the starting rate for savings are nil rate tax bands and are not treated as an ‘allowance’. Certain customers may receive up to £5,000 of savings income and not pay tax on it. This is called the starting rate for savings. The more you earn in other income (for example wages or pension), the less your starting rate f
From 2016-17 savings income not within the starting rate for savings may be covered by the personal savings allowance and charged to tax at 0%. The allowance applies to the first £1000 of savings income for basic rate taxpayers. For higher rate taxpayers the amount is £500 and there is no allowance for those taxable at the additional rate.
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Individual's entitlement to a savings allowance 12B 1 Subsections (2) to (4) determine the amount of an individual's savings allowance for a tax year. 2 If any of the individual's income for the year is additional-rate income, the individual's savings allowance for the year is nil. 3 If— a any of the individual's income for the year is higher-rate income, and b none of the individual's incom
The Personal Savings Allowance (PSA) introduced tax-free income from Savings Interest from 6 April 2016. This applies up to a maximum £1000 for Basic Rate customers and £500 for Higher Rate customers. The PSA does not apply to savings income received by Additional Rate customers. For 2016 to 2017 tax year only, PSA is shown as an allowance but for 2017 to 2018 onwards, PSA is used to reduce the amount of untaxed interest, applying tax to interest remaining after any allowances: the total Liabili
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Savings income charged at the savings nil rate 12A 1 This section applies in relation to an individual if— a the amount of the individual's Step 3 income is greater than £L, where £L is the amount of the starting rate limit for savings, and b when the individual's Step 3 income is split into two parts— i one (“the individual's income up to the starting rate for savings”) consisting of the lo