The Personal Savings Allowance: 2026/27 UK Tax Guide

Managing savings income efficiently requires a precise understanding of the statutory allowances available to taxpayers. For the 2026/27 tax year, the core legislative framework governing the taxation of interest remains stable, but tax professionals must navigate frozen thresholds and prepare for significant rate increases legislated for the following year.

This guide outlines the mechanics of the Personal Savings Allowance (PSA) for 2026/27, its interaction with the starting rate for savings, and how HMRC applies these rules within the PAYE system.

The Core Mechanisms of the Personal Savings Allowance

Section 12B of the Income Tax Act 2007 (ITA 2007) establishes the individual’s entitlement to a savings allowance.  The legislation determines the exact amount of the allowance based on the taxpayer’s highest marginal rate of income tax.

When savings income falls within this allowance, section 12A of ITA 2007 applies the “savings nil rate” (0%) to that specific tranche of income.

“If £X is less than or equal to £A, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate or the default basic, default higher or default additional rate) on the excess.”

The government has maintained the strict tiering of the PSA for the 2026/27 tax year:

Tax professionals must accurately establish the client’s highest marginal rate to determine the correct PSA. The government froze the Personal Allowance at £12,570 and the basic rate limit at £37,700 through to April 2028.  This creates a hard higher rate threshold of £50,270 for the 2026/27 tax year.  If a client’s total taxable income reaches £50,271, they instantly become a higher rate taxpayer, and their PSA abruptly halves from £1,000 to £500.

2026/27 Savings Tax Rates

When savings income exceeds the available PSA (and any other applicable nil-rate bands), the taxpayer must pay tax at the statutory savings rates. Section 3 of the Finance Act 2026 sets the savings rates of income tax for the 2026/27 tax year.

The Intersection: The Starting Rate for Savings

Low-income earners can stack the Personal Savings Allowance with the starting rate for savings to maximise their tax-free interest. Section 12 of ITA 2007 provides a 0% starting rate on savings income for taxpayers whose non-savings income falls below their personal allowance plus the starting rate limit.

For the 2026/27 tax year, the government froze the starting rate limit for savings at £5,000, disapplying the standard statutory indexation.

Consequently, if a taxpayer earns less than £17,570 in non-savings income (£12,570 Personal Allowance + £5,000 starting rate limit), they can potentially receive up to £5,000 in savings interest tax-free, in addition to their £1,000 Personal Savings Allowance.

HMRC Administration and PAYE Coding

HMRC actively adjusts tax codes to collect tax on savings income that exceeds the available allowances. Banks and building societies supply HMRC with data regarding gross untaxed savings income.

When configuring the PAYE coding notice, the HMRC system applies a strict ordering rule. The system allocates the starting rate for savings (SSR) first, followed by the Personal Savings Allowance (PSA), to shelter the untaxed interest.  Any remaining taxable interest directly reduces the taxpayer’s available tax-free coding allowances.

Looking Ahead: 2027/28 Tax Increases

While advising on the 2026/27 tax year, practitioners must prepare clients for the aggressive tax changes taking effect from 6 April 2027.

Section 5 of the Finance Act 2026 explicitly increases the savings rates for the 2027/28 tax year:

• The basic rate will rise to 22%.
• The higher rate will rise to 42%.
• The additional rate will rise to 47%.

Furthermore, the government will alter the fundamental Income Tax calculation rules from April 2027. The revised legislation will force general reliefs and allowances (such as the Personal Allowance) to apply against property, savings, and dividend income only after they have offset other sources of income (like employment or self-employment earnings).  This structural change ensures that investment income suffers the new, higher marginal rates more frequently.

Consider reviewing the client’s asset allocation to determine whether transferring interest-bearing assets into an ISA or a lower-earning spouse’s name could better utilise the £1,000 Personal Savings Allowance before the 2027 rate increases take effect.