Personal savings allowance

Example: personal savings allowance

In the 2026/27 tax year, Henry earns £25,000 and has savings income of £600. He has to pay tax at 20% on £12,430 of his earnings (the amount left once his £12,570 personal allowance is used). However, his savings income is tax free due to his £1,000 personal savings allowance.

If his savings income was £1,250 instead of £600, he would have 20% tax to pay on £250 (that is, £50). 

As tax is not collected at source on interest, Henry would need to tell HMRC about this interest and then pay this £50 to HMRC another way – most likely by having his PAYE tax code adjusted.

  You also need to consider if your tax bands can be extended for any charitable donations under Gift Aid, or any relief at source pension contributions.

Example – effect of income on personal savings allowance

John (not a Scottish taxpayer) has total income of £50,271 in 2026/27. He has not made any pension contributions under a relief at source scheme, nor has he made any gift aid donations, therefore he is entitled to the standard personal allowance and basic rate band of £50,270. 

John’s total income includes £1,000 of savings interest. Since his total income takes him into the higher rate tax band (by £1!), his personal savings allowance is £500.

His savings income is taxed as follows:

£500 @ 0% = £0

£499 @ 20% = £99.80

£1 @ 40% = £0.40

Total tax on savings interest of £100.20.

James (not a Scottish taxpayer) has total income of £50,270 in 2026/27, and has made no Gift Aid donations or pension contributions under a relief at source scheme. James’ income includes £1,000 of savings interest. Since his total income falls within the personal allowance and basic rate tax band, he is entitled to a personal savings allowance of £1,000.

His savings income is taxed as follows:

£1,000 @ 0% = £0

Total tax on savings interest of £0

As you can see from this example, a £1 increase in income has produced an additional tax liability of £100.20.

Example – effect of gift aid and pension contributions on personal savings allowance

If John (from the previous example) had made a charitable donation under gift aid or a relief at source pension contribution then he would have been able to extend his basic rate tax band by the gross contributions made. He would then benefit from the higher personal savings allowance. 

Going back to the example above, remember that John’s income in 2026/27 was £50,271. If in 2026/27, John had made a net charitable contribution under gift aid of £100 and a relief at source net pension contribution of £200 then he would be able to extend his basic rate band by his gross contributions.

The gross contribution is calculated by taking the £300 (the £100 charitable donation plus the £200 pension contribution), multiplying it by 100, and then dividing that figure by 80. In this case, John’s basic rate tax band would be extended by £375, to £50,645. 

This would mean that he would no longer fall within the higher rate tax band and he would be entitled to the full £1,000 savings allowance like James.

Example – savings income using up basic rate band

Magda (who is not a Scottish taxpayer) has earnings of £48,650 and savings income of £1,750 in 2026/27. She has not made any pension contributions or Gift Aid donations. She has to pay tax at 20% on £36,080 of her earnings (the amount left once her £12,570 personal allowance is used). After her earnings are taken into consideration, she has £1,620 left in her basic rate band (being £37,700 less £36,080).

As Magda’s savings income of £1,750 is more than her remaining basic rate band of £1,620, she is only entitled to the £500 personal savings allowance.

Although £500 of her savings income is tax free due to the personal savings allowance, it uses up some of her basic rate band, meaning only £1,120 (£1,620 – £500) of her remaining savings income (of £1,250) can be taxed at 20% – resulting in tax of £224. This means that she has to pay 40% on £130 – resulting in tax of £52. As tax is not collected at source on interest, she has to tell HMRC about this interest and pay this total of £276 tax (£224 + £52) to HMRC another way.

Note: Magda could allocate her personal allowance in a more beneficial way, as we explain in our guidance about the personal allowance. But, we have not done that here, so that we can illustrate the point about the way the personal savings allowance works.

  From April 2027 the income tax ordering rules will be changed so that the personal allowance will be deducted against employment income, trading income and pension income first, before savings income and dividend income. 

Example – interaction of the starting rate for savings and personal savings allowance

We outline various scenarios below which show how the application of savings tax rates can change depending on income level.

Scenario A: starting rate for savings only

In 2026/27, Mo has pension income of £14,000 and savings income of £1,500. He has to pay tax at 20% on £1,430 of his pension income (the amount left once his £12,570 personal allowance is used). 

He does not have to pay any tax on his savings income, because it all falls within the starting rate for savings band – as his total income is less than £17,570. Mo does not need to use his personal savings allowance.

Scenario B: starting rate for savings and partial use of the personal savings allowance

In 2026/27, Mo has pension income of £14,000 and savings income of £3,650. He has to pay tax at 20% on £1,430 of his pension income (the amount left once his £12,570 personal allowance is used). 

He does not have to pay any tax on his savings income, because £3,570 would fall within the starting rate for savings band and the remaining £80 would fall within his personal savings allowance.

Scenario C: full use of the starting rate for savings and the personal savings allowance

In 2026/27, Mo has pension income of £14,000 and savings income of £4,650. He has to pay tax at 20% on £1,430 of his pension income (the amount left once his £12,570 personal allowance is used). 

He has to pay tax at 20% on £80 of his savings income. Of the £4,650 total, the first £3,570 falls within the starting rate for savings band. The next £1,000 falls within the personal savings allowance. The remaining £80 is taxable at 20%. As tax is not collected at source on interest, he will have to pay this £16 tax to HMRC another way.

Scenario D: pension income level means the starting rate for savings is unavailable

In 2026/76, Mo has pension income of £18,000 and savings income of £1,500. 

The starting rate for savings band would not be available to him at all, because his pension income has exceeded his personal allowance of £12,570 plus the starting rate for savings band of £5,000 (a total of £17,570). He would therefore have to pay tax at 20% on £500 of his savings income (that is, the amount left over once his £1,000 personal savings allowance has been used).

Example – savings income only

Richard has £18,900 of savings income in 2026/27 and no earned income. His tax will be worked out as follows:

Richard has no earned income and he has not used up any of his starting rate for savings tax band so he will be taxed up to the limit of £5,000 at 0%. The next £1,000 will fall within his personal savings allowance of £1,000 and also be taxed at the rate of 0%. The balance of £330 will be taxed at the 20% basic rate.

In this case, as Richard’s savings income is more than £10,000, he falls within HMRC’s self assessment criteria, and HMRC will expect him to submit a tax return.  

As such, if Richard is not already registered for self assessment he will need to do so by 5 October following the end of the tax year, and will pay the tax on the savings interest by the following 31 January.

See our separate guidance pages for information about HMRC’s self assessment criteria and registering for self assessment. 

Example – starting rate for savings unavailable

Gerry has earnings of £17,700 and savings income of £1,200. His earned income is more than the upper limit of £17,570 for the starting rate for savings, which is the personal allowance of £12,570 plus the starting rate band of £5,000. So, £1,000 of his savings income falls within his personal savings allowance and is taxed at 0%. He is taxed on the balance of £200 savings at the 20% basic rate. His tax will be worked out as follows:

Example – starting rate for savings and personal savings allowance available

Amanda has total taxable income of £18,900, made up of £10,900 wages and £8,000 savings interest.

Earned income uses £10,900 of Amanda’s personal allowance of £12,570, leaving £1,670 to go against her savings income. This means only £6,330 of her savings income is liable to tax.

Her tax can be worked out as follows:

Example – starting rate for savings partially available

Michael has total taxable income of £18,900 in 2026/27, made up of £13,100 wages and £5,800 savings.

His tax can be worked out as follows:

Of the £5,000 starting rate for savings band, £530 has been used up by the earned income above his personal allowance, so £4,470 remains for Michael to use for his savings income: