Your Personal Savings Allowance (or PSA) is the amount of interest you can earn on your savings each tax year^, before you’ll need to pay tax on them. 

The amount of PSA you’re allowed depends on how much you earn. The table below shows the allowance for each Income Tax band:

Your bank or building society will usually pay the interest you earnt from your savings automatically to you. But, any savings interest that is paid that goes over your PSA, you will need to ensure is paid to HMRC.

One way to do this is through your tax code. That’s why it’s important to make sure that you are on the right tax code to avoid any extra payments or fines. 

Your PSA applies wherever your savings interest comes from. The exception is any savings you have in Individual Savings Accounts (ISAs).

Each tax year, you’re allowed to pay in up to the maximum ISA allowance tax-free into ISAs. This is why ISAs are so appealing, because the interest you earn on the money you save isn’t taxable and doesn’t impact your PSA. 

If you’re employed and you go over your PSA, or if your Income Tax band changes, you shouldn’t need to do anything yourself. Your bank or building society will tell HMRC about the interest earned on your savings and you’ll pay any tax you owe through ‘pay-as-you-earn' (PAYE). 

If you're self-employed and you exceed your PSA, it’s up to you to let HMRC know this on your self-assessment tax return. They’ll work out if you need to pay any tax and tell you how to do this.

If you go over your PSA, they’ll charge Income Tax at your regular rate. Visit the GOV.UK website for more information on the PSA.

Jane is employed and pays the basic Income Tax rate. Her non-ISA savings account has £30,000 in it and has a fixed interest rate of 4%. So, how much will she save and how much tax will she owe after one year? 

In one year, Jane would earn £1,200 in interest on her £30,000 (4% of £30,000). The PSA for those on the basic rate is £1,000. So, £200 of the interest Jane has earned is outside of her £1,000 PSA.

This £200 is subject to the basic Income Tax rate of 20%. Jane must pay £40 (20% of £200) in tax. HMRC should change Jane's tax code to collect the £40 she owes through her salary. 

Now you know how your PSA works, take a look at how much you have in your non-ISA savings. Check the interest they’re due to earn next to your Income Tax band. This could help you avoid any additional payments or fines.

You can check how much tax you may owe on your savings.

Remember, each tax year, you can save up to your maximum ISA allowance. You can learn more on how to make the most of your tax-free ISA allowance by reading our helpful guide.

Don’t ignore the interest you earn on your savings. If you're unsure or need further support, you could consider seeking independent financial advice.