Personal Savings Allowance (PSA)

What is a PSA and why does it matter to me?

What is a PSA

In a nutshell, it allows basic rate taxpayers to earn up to £1,000 interest on their savings each tax year without paying any UK income tax on it.

Higher rate taxpayers have a PSA of £500 before they pay tax while additional rate taxpayers don’t qualify for the PSA.

What does the PSA mean for me?

Put simply, the PSA means that:

  • The first £1,000 of savings interest that basic rate taxpayers earn and the first £500 for higher rate taxpayers is free from UK income tax.
  • It’s your responsibility to pay any tax you may owe directly to HM Revenue & Customs, according to your individual circumstances.

The maximum you can gain thanks to the allowance is £200 if you earn £1,000 interest.

You need quite significant savings to get the full benefit of the changes, but even those with a more modest nest egg will get something back.

More about savings allowances and tax

With limits set by the government, it’s important to understand how much you can save and earn in interest before you’re liable to pay tax.

If you’re looking for tax-efficient options, you might like to consider an Individual Savings Account – known more commonly as an ISA. In the current tax year, you could take advantage of an ISA allowance of up to £20,000.

Learn more at GOV.UK