The personal savings allowance (PSA) lets you earn a certain amount of interest on your savings even without paying taxes. For basic rate taxpayers up to £1,000 in interest, UK Personal Savings Allowance 2024/25 permits. Higher rate taxpayers might gain up to £500 in savings interest.
UK Personal Savings Allowance 2024/25
Your Personal Savings Allowance (PSA) is the whole yearly interest you might get across all of your bank accounts—except ISAs without paying tax. Any interest over your PSA will be taxed using your normal income tax rate.
If you are a basic rate taxpayer and beyond the £1,000 threshold, you will therefore be taxed 20% on any interest earned. Interest above their £500 PSA will be levied 40% to higher-rate taxpayers.
Extra rate taxpayers are not entitled to a PSA, so any interest earned on their savings is taxed at 45%. With all banks and building societies, it covers the interest you get from all of your accounts—except ISAs. Your yearly income tax will decide the possible tax-free interest you might get.
UK Personal Savings Allowance 2024/25 Amount
Should you be a basic-rate UK taxpayer, tax is now free on up to £1,000 of interest on your savings income. If you pay higher rates, too up to £500 is tax-free. This shows the tax savings made possible for the tax years 2024/25 based on every income tax level:
| Tax Band | Taxable Income | Tax Rate | Personal Savings Allowance |
| Personal Allowance | Up to £12,570 | 0% | £1,000 |
| Basic Rate | £12,571 – £50,270 | 20% | £1,000 |
| Higher Rate | £50,271 – £125,140 | 40% | £500 |
| Additional Rate | Over £125,140 | 45% | £0 |
Beyond the PSA and personal allowance, you can be eligible for a tax-free allowance on interest known as the starting rate for savings. Starting savings rates relate to low earners whose combined taxable income in 2024/25 is less than £17,570.
Starting at a unique 0% tax rate on interest up to £5,000, every £1 you earn beyond your income tax allowance—which is set at £12,570 in the 2024–25 tax year—reduces it.
How to Maximize the Benefits of the PSA?
The following guidance will help savers optimize the PSA in 2024–25:
- Make sure the interest rate on your savings best suits you. Given increasing rates, especially, consider switching to high-interest savings accounts.
- If you want to exceed your PSA, consider moving some of your savings into a Cash ISA, in which case all interest is tax-free.
- If you are almost matching your PSA, consider spreading your savings across many accounts to keep interest under the tax-free cap.
- Watch your entire income to make sure you stay in your tax band. Your PSA will drop and you might have to change your savings plan if you go from basic-rate to higher-rate taxpayer status.
Who Benefits Most from the PSA?
Those with lower to intermediate income would especially benefit from the PSA. Those who pay basic rates and may earn up to £1,000 in tax-free interest can save a lot of money free from worrying about paying tax on the interest.
Many basic-rate taxpayers would not surpass the £1,000 level because current interest rates are still somewhat low, therefore they might not have to pay any tax on their savings interest at all.
Though to a lesser extent, higher-rate taxpayers with a £500 PSA also benefit. Those who are additional-rate taxpayers, that is, those who do not receive a PSA must pay tax on all the interest they accrue, therefore reducing the overall return on their assets.
Does the Personal Savings Allowance Apply to Cash ISAs?
Considering non-ISA savings accounts makes sense if your PSA is unlikely to be exceeded by your savings income. This is so because most ISAs do not have as competitive interest rates as the top-paying conventional savings accounts do.
Unlike other savings accounts, all interest generated in a Cash ISA is exempt from UK income tax without using any of your PSA or beginning rate for savings.
ISAs may be helpful, however, if you are a high-income or a basic-rate taxpayer with significant funds. Although funds saved in an ISA are not counted against your PSA, once you have spent your £1,000 or £500 limit an ISA may still provide you a tax-free option.
Similarly, if you are an extra-rate taxpayer and are not qualified for the PSA, an ISA might help to lower taxes and boost returns. The ISA allowance, £20,000 this tax year, caps the amount you might deposit into a Cash ISA. The ISA allowance does not replace the Personal Saving Allowance.
As long as you keep under the total limit, you are free to divide your ISA allowance in any way you like, between cash ISAs, Stock and shares ISAs, and innovative finance ISAs.