What is PSA (Personal Savings Allowance)?
The amount of savings interest you can earn tax-free each year. Basic-rate taxpayers get £1,000, higher-rate taxpayers get £500, and additional-rate taxpayers get £0. Interest above your PSA is taxed at your marginal income tax rate. ISA interest doesn't count towards your PSA.
The Personal Savings Allowance, introduced in April 2016, is the amount of savings interest that can be earned each tax year before income tax is due on it. Basic-rate taxpayers get £1,000, higher-rate taxpayers £500, and additional-rate taxpayers nothing. Interest above the allowance is taxed at the saver's marginal rate.
It covers interest from banks, building societies and similar accounts — including regular savers and the savings side of a stooze. It does not cover ISA interest or Premium Bond prizes, which are tax-free in their own right and sit outside the PSA entirely. Low earners can also benefit from the separate starting rate for savings, which can shelter up to £5,000 of interest for those with little other income.
Since 2016 UK banks have paid interest gross, with no tax deducted at source. Banks report interest to HMRC, which collects any tax due through a tax code adjustment or self-assessment — so interest over the allowance doesn't go unnoticed just because nothing was deducted.