Low earners are able to earn interest on savings without paying tax up to the personal allowance plus the £5000 starting rate.

Based on savings interest alone a maximum of £17500 tax free interest is available if that is a persons only income source.

This figure is reduced by other income.

Somebody earning £17000 by PAYE would only get £500 tax free starting rate.

Adding in the Personal Savings Allowance for interest of £1000 means that in practice the maximum interest only income tax free is £18570.

This is separate from an ISA which is tax free.

You need to register for self assessment if your income from savings is above £10000.

Savings income above £10000

Self assessment

eg. Savings income £10000

PAYE income £8570.

No tax to be paid, personal allowance use is £4000, £5000 starting rate, £1000 PSA.

So tax is paid on total income - personal allowance - starting rate - PSA (£18570)

eg. Savings income £10000

PAYE income £10000

Tax to be paid on £20000-£18570=£1430.

eg. Savings income £11430

PAYE income £8570

Tax to be paid on £20000-£18570=£1430