Personal Savings Allowance 2026: How £1,000 Tax-Free Interest Works With a Cash ISA

Savers in the UK get more than one route to earn interest without paying Income Tax. For the 2026 to 2027 tax year, HM Revenue and Customs keeps the Personal Savings Allowance in place, while the annual Individual Savings Account (ISA) limit stays at £20,000.

The Personal Savings Allowance is the amount of interest from ordinary savings accounts that can be received before Income Tax is due. According to GOV.UK, basic-rate taxpayers can receive up to £1,000 of savings interest tax-free. Higher-rate taxpayers can receive up to £500. Additional-rate taxpayers receive no Personal Savings Allowance.

That allowance sits alongside other rules. Interest earned inside a Cash ISA does not use up the Personal Savings Allowance, because ISA interest is already tax-free. A saver can therefore use the £20,000 ISA allowance and still keep the Personal Savings Allowance for interest paid on taxable accounts outside an ISA.

The starting rate for savings is a separate band. GOV.UK states that people with lower non-savings income may receive up to £5,000 of interest taxed at 0%. That band shrinks as other income rises. Anyone whose other income is £17,570 or more is not eligible for the starting rate for savings.

Personal Allowance rules still matter. The standard Personal Allowance for 2026 to 2027 is £12,570. Unused Personal Allowance can cover savings interest before the starting rate or Personal Savings Allowance come into play. How those bands stack depends on the mix of wages, pension income, and interest in each tax year.

Cash ISAs remain one of the main tax-free wrappers for UK residents aged 18 and over. Across Cash ISAs, Stocks and Shares ISAs, and Innovative Finance ISAs, the combined subscription limit for 2026 to 2027 is £20,000. A Lifetime ISA has its own £4,000 annual limit, which also counts toward that overall ISA total.

From 6 April 2027, the rules for Cash ISAs are due to change for younger savers. Draft HMRC regulations consulted on in 2026 would set the annual Cash ISA subscription limit at £12,000 for investors under 65, while the Cash ISA limit for investors aged 65 or over would remain at £20,000. Final regulations and provider guidance will confirm the exact operating detail before the start date.

Interest covered by the Personal Savings Allowance includes interest from bank and building society accounts, credit unions, and other savings-style products listed by HMRC. Interest on joint accounts is usually split equally between the holders for tax purposes unless HMRC agrees a different split.

Banks and building societies typically pay interest without deducting tax. HMRC may adjust a tax code for employees and pensioners if estimated interest exceeds the available allowance. People who complete Self Assessment report savings interest on their tax return. Anyone who goes over the allowance and does not receive a tax calculation letter by 31 March of the following tax year is expected to contact HMRC.

Rates on Cash ISAs and taxable savings accounts move with the wider interest-rate environment, including Bank Rate set by the Bank of England. Tax treatment does not change the headline AER a provider advertises, but it does change how much of that interest is kept after tax once allowances are used up.

For households comparing a Cash ISA with a taxable savings account in 2026 to 2027, the published figures to keep in view are the £20,000 ISA allowance, the £1,000 or £500 Personal Savings Allowance by tax band, and the £5,000 starting rate for savings where it still applies. Those numbers come from HMRC and GOV.UK.