Personal Savings Allowance explained

No, the Personal Savings Allowance covers most types of interest, but not all of them. It doesn’t include interest from tax-free savings accounts like ISAs. Certain National Savings & Investments accounts might also be excluded.

The Personal Savings Allowance is different to your general Personal Allowance, as it only deals with savings interest.

On the other hand, the Personal Allowance is what you can earn each year before paying income tax.

Pensioners might need to pay tax on their interest if it’s higher than their personal savings tax allowance.

You’ll need to declare any interest on your self-assessment tax return if you submit one. Otherwise, HMRC may adjust your tax code to collect any tax due.

Any interest earned on a joint savings account can be equally split between the two account holders. This means it’ll also be equally split between your Personal Savings Allowances.

See how joint savings accounts work

The amount of interest you can earn tax-free under the Personal Savings Allowance depends on your income tax band.

Basic rate taxpayers can earn tax-free interest up to £1,000. Meanwhile, it’s £500 for higher rate taxpayers.

However, additional rate taxpayers aren’t eligible for a Personal Savings Allowance.

Here are a couple of examples that might help. They both assume you only have one savings account.

Say you had £100,000 in a non-ISA savings account that paid interest annually, with an AER of 1%. In this case, you’d earn £1,000 in interest and wouldn’t need to pay any tax on it, assuming you were a basic rate taxpayer.

On the other hand, say you had £36,000 in a non-ISA account that paid interest annually, with an AER of 3%. You’d earn £1,080 in interest. So, if you’re a basic rate taxpayer, you’d need to pay tax on the £80 above the £1,000 Personal Savings Allowance.