The Personal Savings Allowance, introduced in 2016, is the amount of interest you can earn before you have to start paying tax.

• Basic rate tax-payers can earn £1,000 interest on savings before paying tax
• Higher rate tax-payers can earn £500 interest on savings before paying tax

Your Personal Savings Allowance is based on the interest earned from all of your savings accounts but excludes ISAs. Interest earned in an ISA is always tax-free - regardless of your earnings.

If you come into extra money or your salary increases, interest on your non-ISA savings might take you over the Personal Savings Allowance threshold.

By saving in an ISA, you won’t pay tax on your interest. If you save in an ISA each tax year, you can build up your savings which remain tax-free.

For example, if the interest rate on your account increases and you have a large amount of savings, the increase in interest can take you over the Personal Savings Allowance. The interest would remain tax-free in an ISA and wouldn't impact on your Personal Savings Allowance.

If your spouse or civil partner passes away and they had ISA savings, you can inherit an additional ISA allowance. The amount depends on when they passed away and how much savings they had. This is separate to your annual ISA allowance each tax year.

It’s important to remember, however, that you can’t inherit a Personal Savings Allowance. 

If you're an additional rate tax payer (earning £150,000 or more), you aren't given a Personal Savings Allowance, so you are taxed on all of your savings that aren't saved in an ISA.