HMRC Tax-Free Allowance Increase: How Some Savers Could Receive £18,570 Tax-Free?

Reports of an HMRC tax-free allowance increase have attracted attention after it emerged that some people could potentially receive as much as £18,570 in income without paying Income Tax.

However, the figure needs careful explanation.

HMRC has not increased the standard Personal Allowance from £12,570 to £18,570. The normal Personal Allowance remains frozen at £12,570 for the 2026/27 tax year and is currently legislated to stay at that level through 2030/31.

Instead, the larger £18,570 figure can apply in specific circumstances where a person combines their £12,570 Personal Allowance with the Starting Rate for Savings and the Personal Savings Allowance.

The rules are particularly relevant to people with relatively low income from employment or pensions but who receive interest from savings.

Has HMRC Increased the Tax-Free Personal Allowance to £18,570?

No. The standard UK Personal Allowance is still £12,570.

For the current 2026/27 tax year, most people can receive up to £12,570 of qualifying income before they start paying Income Tax.

The £18,570 figure comes from potentially combining three different tax-free amounts:

£12,570 through the standard Personal Allowance, up to £5,000 through the Starting Rate for Savings, and potentially another £1,000 through the Personal Savings Allowance.

Together, those amounts can reach £18,570.

However, the additional £6,000 relates specifically to qualifying savings income. It does not mean that an employee can simply earn £18,570 in wages without paying Income Tax.

HMRC confirms that the amount of Starting Rate for Savings available depends on how much other taxable income a person receives.

How Does the £18,570 Tax-Free Amount Work?

Someone whose income comes largely from savings could potentially benefit from all three allowances.

The first £12,570 could be covered by the normal Personal Allowance.

They could then potentially receive up to £5,000 of savings interest taxed at the 0% Starting Rate for Savings.

A basic-rate taxpayer may also qualify for a £1,000 Personal Savings Allowance.

That could result in as much as £18,570 being received before Income Tax becomes payable, depending on the type and level of income involved.

The key point is that these allowances work differently. The £5,000 Starting Rate for Savings is not an extra Personal Allowance that can normally be applied to salary or pension income.

It applies to savings income and becomes smaller as other taxable income rises.

Who Can Get the £5,000 Starting Rate for Savings?

The Starting Rate for Savings is mainly designed to benefit people with lower levels of non-savings income.

HMRC says someone may qualify if their other taxable income, excluding savings interest and dividends, is below £17,570.

The maximum Starting Rate for Savings is £5,000.

However, every £1 of other income above the £12,570 Personal Allowance reduces the available £5,000 savings band by £1.

For example, someone earning £14,570 from employment would be £2,000 above the Personal Allowance.

Their maximum Starting Rate for Savings would therefore fall from £5,000 to £3,000.

Once other income reaches £17,570 or more, the Starting Rate for Savings is normally no longer available.

This is why the headline £18,570 tax-free figure will not apply to every taxpayer.

What Is the Personal Savings Allowance?

The Personal Savings Allowance is separate from both the Personal Allowance and the Starting Rate for Savings.

For 2026/27, basic-rate taxpayers can generally receive up to £1,000 of savings interest without paying tax on it.

Higher-rate taxpayers receive a £500 Personal Savings Allowance.

Additional-rate taxpayers do not receive a Personal Savings Allowance.

Savings interest can include interest received from bank accounts, building society accounts and certain other savings products.

Interest held within an ISA is generally already tax-free under separate ISA rules and therefore does not normally use the Personal Savings Allowance.

Why Are People Calling This an HMRC Tax-Free Allowance Increase?

The phrase has appeared because the combination of existing allowances can make the effective tax-free amount much higher than the standard £12,570 figure for some savers.

Recent reports have highlighted that somebody with the right mixture of low earnings and savings interest could potentially receive up to £18,570 before Income Tax becomes payable.

But describing this as a new increase to the Personal Allowance can be misleading.

The £12,570 Personal Allowance itself has not increased.

In fact, the Government has extended the freeze on the Personal Allowance and basic-rate limit.

Finance Act 2026 keeps the Personal Allowance at £12,570 for 2028/29, 2029/30 and 2030/31 as well as the existing freeze covering earlier years.

That means workers whose salaries increase could gradually pay Income Tax on a larger proportion of their earnings even if Income Tax rates themselves remain unchanged.

What Does the Allowance Rule Mean for London Savers?

The savings rules could be particularly relevant to pensioners, part-time workers and people temporarily receiving little or no employment income.

Someone living partly from cash savings while receiving a modest pension, for example, could potentially use some or all of the Starting Rate for Savings.

People taking a career break or working reduced hours could also find themselves within the qualifying income range.

The benefit depends on the person’s complete taxable income, however, rather than simply the amount they have saved.

Londoners should therefore look at wages, pensions, rental income and savings interest together when checking whether the Starting Rate for Savings applies.

Are the Savings Allowances Changing in 2027?

There is an important change coming from 6 April 2027, although it does not remove the Starting Rate for Savings or the Personal Savings Allowance.

The Government has legislated higher Income Tax rates on taxable savings income from the 2027/28 tax year.

The savings basic rate is due to rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%.

The structure of the savings allowances will remain in place, including the maximum £5,000 Starting Rate for Savings and the Personal Savings Allowance.

This could make checking available tax-free allowances increasingly important for savers whose interest exceeds those limits.

What Should Taxpayers Check With HMRC?

Anyone trying to determine whether they can receive up to £18,570 tax-free should avoid treating that number as a new universal Income Tax threshold.

The starting point remains the £12,570 Personal Allowance.

They should then check how much taxable income they receive from employment, pensions and other non-savings sources before calculating whether any Starting Rate for Savings remains available.

They should also establish whether they qualify for the £1,000 or £500 Personal Savings Allowance.

HMRC states that people can potentially benefit from the Personal Allowance, Starting Rate for Savings and Personal Savings Allowance in the same tax year where their circumstances meet the rules.

For most workers, therefore, there has been no general HMRC tax-free allowance increase. But for some lower-income savers, understanding how the three allowances interact could mean considerably more savings interest can be received without an Income Tax bill.