Households are being encouraged to review their finances to see if they can increase their tax-free income to nearly £19,000 using a savings rule provided by HMRC. This benefit can be claimed again in the new tax year.
The new tax year runs from April 6, 2026, to April 5, 2027, giving taxpayers refreshed allowances to take advantage of.
Standard Personal Allowance
Typically, individuals can earn up to £12,570 per year without paying Income Tax. This is known as the Personal Allowance, which remains unchanged for this tax year.
DWP Benefit Rules 2026: Four New Changes Introduced for Universal Credit, PIP and ESA Claimants
Boosting Your Tax-Free Income
If your total income is below £18,570, you may be able to increase your tax-free limit using the Starting Rate for Savings.
- Up to £5,000 of savings interest can be tax-free if your earned income is low.
- An additional £1,000 can be earned tax-free through the Personal Savings Allowance.
This means some people could earn up to £18,570 without paying any tax.
How It Works
If you earn less than £12,570 from work or pensions, you can get the full £5,000 savings allowance. However, this allowance reduces by £1 for every £1 you earn above £12,570.
Example Scenario
Consider someone with no earned income but £20,000 in savings interest:
- First £12,570 – covered by Personal Allowance
- Next £5,000 – covered by Starting Rate for Savings
- Next £1,000 – covered by Personal Savings Allowance
This makes £18,570 tax-free. The remaining £1,430 is taxed at 20%, resulting in £286 tax.
Eligibility Rules
- You are not eligible for the Starting Rate for Savings if your income exceeds £17,570.
- The £5,000 allowance reduces as your income increases above £12,570.
Another Example
If you earn £16,000 in wages and receive £200 interest:
- £12,570 is tax-free (Personal Allowance)
- Remaining £3,430 reduces your savings allowance
- New savings allowance becomes £1,570
Your £200 interest remains tax-free.
Claiming Back Tax
If you have paid tax on savings interest in previous years, you may be able to reclaim it through a Self Assessment Tax Return.
Claims can be backdated for up to four years. From April 6, 2026, claims for the 2021–22 tax year will no longer be accepted.
