Tax-free savings interest

The Personal Savings Allowance (PSA) was launched in April 2016. For basic-rate taxpayers the first £1,000 of interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Anyone earning over £125,140, in the current 2023-24 tax year, does not benefit from the PSA.

Interest from savings products such as ISA's and premium bond wins do not count towards the limit. So, a basic-rate taxpayer with ISA interest and premium bond wins can still benefit in full from the relevant PSA limits.

Savings income covered under the PSA includes account interest earned from bank and building society accounts as well as accounts with other providers such as savings and credit unions.

It also includes interest from:

• unit trusts, investment trusts and open-ended investment companies
• peer-to-peer lending
• trust funds
• payment protection insurance (PPI)
• government or company bonds
• life annuity payments
• some life insurance contracts.

Taxpayers who still need to pay tax on savings income need to pay tax on any interest over their allowance at their usual rate of Income Tax.