Under personal savings allowance UK rules, basic-rate taxpayers earn £1,000 of savings interest tax-free each year, higher-rate taxpayers £500, and additional-rate taxpayers nothing at all. At today’s best easy-access rate of 4.52%, a basic-rate saver starts owing tax at £22,124 in savings — while a higher-rate saver crosses the line at just £11,062. And from April 2027, the tax rates on that interest rise while the allowances stay frozen.
Here’s the uncomfortable truth: savings rates above 4% have quietly dragged hundreds of thousands of ordinary savers into paying tax on their interest for the first time. Most have no idea it’s happening — banks don’t deduct the tax, and HMRC collects it silently through your tax code. This is the complete 2026/27 picture: the bands, the exact crossover balances, and the 2027 deadline that makes this year the one to act.
Personal Savings Allowance UK: The 2026/27 Bands
The personal savings allowance (PSA) is the amount of savings interest you can earn tax-free each tax year, on top of your Personal Allowance. For 2026/27 the bands are unchanged — they’ve been frozen since the allowance launched in 2016:
- Basic-rate taxpayers (20%): £1,000 of interest tax-free
- Higher-rate taxpayers (40%): £500 of interest tax-free
- Additional-rate taxpayers (45%): £0 — every penny of savings interest is taxable
Interest inside the allowance is taxed at 0% — but it still counts toward your total income when HMRC works out your tax band. That detail matters: enough interest can tip you from basic-rate into higher-rate territory, halving your allowance to £500 in the process. It’s a cliff edge disguised as a perk.
Crucially, the PSA only covers interest — savings accounts, mostly. Cash ISA interest sits entirely outside the PSA and is tax-free at any amount, which is why ISAs are the first line of defence. Our cash ISA vs stocks and shares ISA guide breaks down the 2026/27 allowance strategy.
The Exact Balance Where Tax Kicks In
Forget the allowance figure — what you actually need is the savings balance where tax starts. At the current best-buy easy-access rate of 4.52%:
- Basic-rate (£1,000 allowance): tax kicks in at £22,124 in savings
- Higher-rate (£500 allowance): tax kicks in at just £11,062 in savings
Those numbers shock people. £11,062 is not a fortune — it’s an emergency fund plus a bit of discipline. And the tax bills are real: £20,000 saved at 4.5% earns £900 of interest, which means a higher-rate taxpayer owes £160, an additional-rate taxpayer owes £405, and a basic-rate taxpayer owes nothing.
Two traps to watch. First, fixed-term accounts: the interest counts in the tax year you can access it, not the year it accrues — a three-year fix can dump three years of interest into one year’s allowance. Second, joint accounts: the interest is split 50/50 between holders, so a couple effectively doubles the allowance on shared savings. For steady savers building month by month, the 52-week savings challenge is a good way to watch the balance grow — just know where your line is.
The £5,000 Starting Rate Nobody Talks About
There’s a second, lesser-known allowance hiding underneath the PSA: the starting rate for savings. If your non-savings income is below £17,570, you can earn up to £5,000 of savings interest at 0% — and it tapers by £1 for every £1 your income sits above the £12,570 Personal Allowance.
Who does this help? Mainly lower earners, part-time workers and early retirees living off modest pensions. Someone with exactly £12,570 of non-savings income can combine the Personal Allowance, the full £5,000 starting rate and the £1,000 PSA to earn up to £18,570 of interest completely tax-free. That’s a genuinely generous outcome hiding in a rule almost nobody has heard of.
The catch: it only applies to savings interest (not dividends), and it’s scheduled to stay at £5,000 until at least 2030/31 — one of the few frozen thresholds working in savers’ favour.
April 2027: The Double Deadline
Now the urgency. From April 2027, two things change at once — and both make the PSA more painful:
First, the tax rates on savings interest rise by two percentage points: 20% becomes 22%, 40% becomes 42%, and 45% becomes 47%. The PSA bands themselves stay frozen at £1,000/£500/£0, so the same interest costs you more tax. That £900 of interest on £20,000 of savings? A higher-rate taxpayer’s bill rises from £160 to £168 — small on its own, but it compounds across every saver in the country.
Second, the cash ISA allowance for under-65s drops from £20,000 to £12,000 from 6 April 2027. The single most effective shelter against PSA tax is being cut by 40% at exactly the moment savings tax rates rise. If you have cash savings outside an ISA, the 2026/27 tax year — with the full £20,000 ISA allowance still available — is the window to move money inside the wrapper. After April 2027, sheltering the same amount takes nearly two years of allowances.
The strategy writes itself: use as much of this year’s £20,000 ISA allowance as you can before 5 April 2027, prioritising money currently earning taxable interest. Interest sheltered in an ISA is tax-free forever, whatever future governments do to the PSA. And if you’re weighing where spare cash goes, remember compound interest rewards the money you protect from tax most of all.
How HMRC Actually Collects the Tax
Banks and building societies pay your interest in full — they haven’t deducted tax at source since 2016. So how does HMRC get its money? For most employees, silently: HMRC estimates your savings interest and adjusts your tax code, trimming your take-home pay a little each month. You may never receive a bill at all.
If the estimate looks wrong — or you want to check — a P800 tax calculation or a Self Assessment return settles the account. The key point: “I never got a bill” doesn’t mean “I owed nothing.” Check your Personal Tax Account online if your savings have grown; the tax code notice will show an entry for savings interest if HMRC is collecting.
FAQs
How does the personal savings allowance UK work for basic-rate taxpayers?
Basic-rate taxpayers can earn £1,000 of savings interest tax-free each tax year under the personal savings allowance. At the current 4.52% best-buy easy-access rate, that covers about £22,124 in savings. Interest above £1,000 is taxed at 20% (rising to 22% from April 2027), usually collected by HMRC adjusting your tax code. The allowance has been £1,000 since 2016.
What is the starting rate for savings?
The starting rate lets you earn up to £5,000 of savings interest at 0% tax, but only if non-savings income is below £17,570. It tapers £1 for every £1 above the £12,570 Personal Allowance. Combined with the allowance and PSA, someone on £12,570 can receive up to £18,570 interest tax-free.
Will I pay more savings tax from April 2027?
Yes, if you earn interest above your allowance. From April 2027 savings-interest tax rates rise two points to 22%, 42% and 47% while the £1,000/£500/£0 bands stay frozen. Meanwhile the under-65 cash ISA allowance drops from £20,000 to £12,000 — the main shelter shrinks just as rates rise.
Does ISA interest count toward the personal savings allowance?
No. Cash ISA interest sits entirely outside the personal savings allowance — tax-free at any amount, using none of your £1,000 or £500 band. That’s what makes ISAs the best defence against savings tax. Use the ISA wrapper first; the PSA covers what’s left outside.
How does HMRC collect tax on my savings interest?
Banks pay interest in full without deducting tax. HMRC usually collects by adjusting your tax code, trimming take-home pay each month — many savers never see a bill. If figures look wrong, check your Personal Tax Account or wait for a P800. Higher earners may declare via Self Assessment.
The Bottom Line
The personal savings allowance UK looks generous until you do the division: at 4.52%, £11,062 of savings is all it takes for a higher-rate taxpayer to start paying. Know your band, know your crossover balance, and use this year’s full £20,000 ISA allowance before the April 2027 double hit — higher savings tax rates and a smaller ISA shelter. The savers who act in 2026/27 will feel the difference for years.
