Personal Savings Allowance Explained

If you’re a basic or higher rate taxpayer you're entitled to a Personal Savings Allowance (PSA). For most people, this means you can earn some savings interest without paying tax.

Here, we’ll give you a quick overview on what the PSA is and how it works. But everyone’s saving situation is different and tax rules may be subject to change in the future. It’s your responsibility to pay any tax due.

What is the Personal Savings Allowance (PSA)?

Your Personal Savings Allowance (PSA) is the total amount of interest you can earn on your savings each tax year (excluding ISAs) without paying tax on that interest.

What’s the difference between the Personal Savings Allowance and the Personal Tax Allowance?

Your PSA amount is based on your income and is the amount of savings interest you can earn without having to pay tax on it.

Your Personal Tax Allowance is the amount you’re allowed to earn in income before you have to pay any tax. You can read more on the income tax rates page on the .GOV website.

How do I work out if I'm over my PSA?

You can use our PSA calculator to help you understand if you might need to pay any tax on the savings interest you earn.

How much is the current Personal Savings Allowance?

Your allowance depends on whether you’re a basic, higher, or additional rate taxpayer. Whilst the income tax bands differ in Scotland, the tax bands listed below are still used for the purposes of calculating your PSA.

*If you are an additional rate taxpayer, you won’t get a PSA. Like everyone else, you can still use your annual ISA allowance to keep some of the interest you earn on your savings free from tax. You will need to pay tax at the applicable rate for anything over your PSA that isn't held in an ISA.

Other tax-free allowances

There are other tax-free savings allowances that you may be eligible for that could affect your banding. For more information, visit the tax on savings and investments page on Money Helper.

What counts as savings interest under the Personal Savings Allowance?

The PSA applies to interest you earn from savings accounts, with the exception of ISAs. Interest earned from an ISA does not count towards this allowance and is completely free from income tax.

To understand the other forms of savings the PSA does apply to, visit the tax on savings interest page on the .GOV website.

Can savings interest push me in to a higher rate income tax band?

Yes. If you enter a different rate band when you add your savings interest to your earned income, you would qualify for the lower or no PSA (depending on what band you think you currently sit in).

How do I claim the Personal Savings Allowance?

You don’t need to do anything to claim; your tax-free interest is paid straight into the account of your choosing. We will report the interest you earn on your Skipton savings accounts to HMRC.

What happens if I exceed my Personal Savings Allowance?

If you’re employed or get a pension and the interest you earn exceeds your PSA, HMRC will automatically collect the tax you owe through your pay-as-you-earn (PAYE) tax code.

If you’re self-employed and fill in a self-assessment tax return, you should include your total interest income from non-ISA savings. You’ll also have to register for self-assessment if your income from savings and investments is over £10,000. You can visit check if you need a tax return page on the .GOV website to see if you need to do one.

If you’re neither employed or self-employed and don’t have a pension income, HMRC will look into the interest you have earned and let you know if you need to pay any tax and how to pay it.

If the interest you earn exceeds your allowance, you will be charged income tax at your usual rate.

See the HMRC Guidance on PSA for more information.

How does the savings allowance work for joint accounts?

If you share a joint bank account, the interest you earn will be divided equally between your individual PSAs.

For example, if both names on the account are higher rate taxpayers and the total interest earned is £1,000, this will be split evenly between the two account holders (unless you tell HMRC otherwise), using up £500 of each individual PSA. As the PSA for higher rate taxpayers is £500, this means there will be no tax payable.

How does this work if one’s a basic rate and the other’s a higher rate taxpayer?

As before, the interest earned would usually be split down the middle.

If we assume again the interest earned on the joint account is £1,000, as the basic rate taxpayer gets a PSA of £1,000, they will still have £500 of their tax-free interest allowance remaining. The higher rate taxpayer’s PSA of £500 on the other hand will have been used up.

Does Personal Savings Allowance replace my ISA allowance?

No, the PSA is in addition to your annual ISA allowance. The interest earned in your ISA remains free from income tax and does not count towards your PSA.

Do I still need an ISA?

As a general rule, it’s a good idea to make the most of your annual ISA allowance. If interest rates increase in the future, or you have more money to save at a later date, you might go over your annual PSA and end up paying some tax.

By putting money into an ISA, you give yourself more leeway, as the interest you earn is free from income tax and doesn't count towards your PSA

Also, if you already have funds in ISAs that have built up over time, you're likely to benefit from leaving them where they are as the interest earned remains exempt from income tax.

If you're an additional rate taxpayer (and so not eligible for a PSA), ISAs will continue to give you a great way of earning tax-free interests on savings.