Here’s what you need to know.
The £12,570 HMRC Personal Allowance
In this post on his website, which shares the segment from his TV show, Lewis says the first rule is the one “most people need to know about”.
“So there are three things most people need to know about. The first is the main one, your tax-free personal allowance, the amount everybody can earn… each year in earnings and interest on savings, that you don’t pay tax on. The standard figure is £12,570 a year.”
This allowance applies to:
- Wages
- Pensions
- Savings interest
- Most other income
If your wages or pension already use the full £12,570, it cannot be used again for savings.
The Personal Savings Allowance (Up to £1,000)
On top of that, there’s the Personal Savings Allowance (PSA).
Lewis explains: “If you are a 20% or 40% rate taxpayer, you are allowed to earn a certain amount of interest separately tax-free.
“So for basic-rate taxpayers it’s £1,000 a year, for higher-rate taxpayers it’s £500 a year.
“Why? You both get a £200 benefit. 20% of £1,000 and 40% of £500 is £200.”
That means:
- Basic-rate taxpayers → £1,000 tax-free interest
- Higher-rate taxpayers → £500 tax-free interest
- Additional-rate taxpayers → £0
He adds that many savers may not even need a cash ISA if their savings are modest:
“So if you have substantially less than this and there’s no foreseeability of you having more, you don’t really need to use a cash ISA because you’re not going to be taxed on your savings anyway.”
The little-known £5,000 Starting Savings Rate
The third allowance is less understood — but potentially the most powerful.
“For lower earners there’s also a thing called the starting savings rate… that can let you earn up to £5,000 of extra interest tax-free in savings.”
Here’s how it works.
If your non-savings income (wages or pension) uses up your £12,570 Personal Allowance, you may still qualify for:
£5,000 starting savings rate (0% tax)
PLUS your £1,000 Personal Savings Allowance
Lewis illustrates it like this: “So now your earnings take up all of your tax-free personal allowance.
“Well the starting savings rate said in this circumstance you can have £5,000 in savings interest tax-free on top of your earnings, plus your personal savings allowance.
“That £1,000. We’ve talked about it. So that’s £6,000. So that would mean you would have £18,570 of combined earnings and savings interest totally tax-free.”
After being asked ‘Should I use an investment platform or a shares ISA’ Martin explains it’s not an either/or. It’s a question of tax.
This is only a snippet. Pls watch the full beginners guide to investing Martin Lewis Money Show Live at https://t.co/LP7gJUZWVY for full context pic.twitter.com/ntEUuptEN0
— Martin Lewis (@MartinSLewis) December 11, 2025
But there’s a catch…
For every £1 you earn above £12,570 in non-savings income, you lose £1 of the £5,000 starting rate.
“For every pound you earn… above the personal savings allowance… you lose £1 of your starting savings allowance.”
Once earnings reach £17,570, the £5,000 starting rate disappears entirely – though the Personal Savings Allowance remains for basic-rate taxpayers.
Why this is especially useful for pensioners
Lewis stresses this rule mainly benefits: “Lower earners who have substantial savings… which is often pensioners.”
With savings rates still competitive, retirees with modest pension income but sizeable savings could legally combine:
- £12,570 Personal Allowance
- £5,000 Starting Savings Rate
- £1,000 Personal Savings Allowance
Total: £18,570 tax-free
And what about cash ISAs?
Lewis makes one final clarification: “Cash ISAs, they’re not just tax-free, but any interest you earn in a cash ISA doesn’t count towards these allowances.
“It’s totally separate… you could have £18,570… and cash ISA interest on top of that. And it would all still be tax-free.”
That means ISA interest sits entirely outside the allowance system.
Recommended reading:
Who can benefit most?
You may benefit most if:
- Your pension or wages are below £17,570
- You have meaningful savings generating interest
- You are a basic-rate taxpayer
- You’re not already using an ISA
The rules are set and administered by HM Revenue & Customs, and allowances apply per tax year (6 April to 5 April).
Many savers assume they’ll automatically pay tax on interest. In reality, layered allowances mean some people – particularly pensioners – can earn far more tax-free than they realise.
