Personal savings allowance changes

PSA-infographic

No tax on savings for 95% of savers thanks to Personal Saving Allowance

The government is changing the way it taxes personal savings and it’s going to benefit 95% of savers.

Traditionally, other than ISA saving accounts you were taxed on any money kept in a current or savings account.

Not any more. From 6th April all banks and building societies will stop taking tax from interest earned on non-ISA savings.

The government is introducing a Personal Savings Allowance which will mean that basic-rate tax payers will be able to earn up to £1,000 interest per year on their money without paying any tax. Higher-rate tax payers will be able to earn up to £500 interest before having to pay tax.

You only need to pay tax on any interest you earn above your Personal Savings Allowance

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What is Personal Savings Allowance?

It is the amount of interest you can earn before you have to start paying tax. According to the Chancellor, 95% of people will benefit from this. It will mean that banks and building societies won’t automatically apply the 20% tax on savings from 6th April.

While both basic and higher rate taxpayers will be entitled to the Personal Savings Allowance, the maximum amount will depend on your earnings.

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Get more information at HMRC Personal Savings Allowance factsheet

Who will be responsible for paying the tax you owe?

HMRC say that any tax on your Personal Savings Allowance will be collected automatically by HMRC, through a change to their tax code - based on information provided by banks and building societies or by completing a self assessment return.

Personal Savings Allowance Q&A

What is classed as savings income?

Savings income is any interest earned from a bank, building society, other account provider such as a credit union, or from government bonds.

Will income from ISAs count towards my Personal Savings Allowance?

No. As interest from ISAs is tax free it will not count towards your Personal Savings Allowance.

My interest will be paid after 6 April 2016, will this be taxable?

No. Regardless of when your account was opened, providing the interest payment date is on or after 6 April 2016, you will not have to pay any tax on the interest earned.

Do I need to inform the building society about my other accounts?

No. You don’t have to divulge anything about your tax status or savings income to any account provider.

What do I do if I’ve filled in a R85 and registered to receive interest without tax?

You don’t need to do anything because from 6 April 2016 all account interest will be paid without tax taken off.

Is there any point in having an ISA now I don’t have to pay tax on my interest?

The answer is a simple yes. For many people, ISAs are still an attractive way to save.

For most people it will still be best to put their money into a top cash ISA first, and then use the personal allowance after that.

The most important thing is that in an ISA your money is protected from tax year after year, so even if the government changes the rules again you will be protected.

Also, your personal circumstances might change. With your money in an ISA, even if your income goes into the higher tax band you’ll still earn tax-free interest.

Interest rates might go up and this would change the amount you could save before being taxed.

So for example, if the current interest rate on your savings is 1.75% AER, you’d be able to save up to £58,000 in a year before going over the £1,000 Personal Savings Allowance. If interest rates went up to 5.00% AER, you’d reach your tax-free interest allowance by saving £20,000 in the year.

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