What is my personal savings allowance?
For basic rate taxpayers:
You will be able to earn £1,000 in savings interest before paying tax.
For example, a basic rate taxpayer would need a savings pot of £50,000 earning 2% interest before the £1,000 limit would be exceeded.
For higher rate taxpayers:
You will be able to earn £500 in savings interest before paying tax.
For additional rate taxpayers:
There is no allowance for additional rate taxpayers.
Please note: If your total taxable income is less than £17,000, you will pay no tax at all on the interest that your savings earn.
What counts as savings income?
- Interest that is earned from banks, building societies and other account providers
- Interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
- income from government or company bonds
- most types of purchased life annuity payments
Does the interest from my ISA count towards my allowance?
No. Interest from ISAs does not count towards your personal savings allowance because it is already tax-free.
Do I need to complete a form to receive my interest tax-free?
No. As from 6 April 2016, you will no longer need to complete an R85 form (or equivalent) and your interest will be paid to you tax-free automatically.
However, if you fill in a self-assessment tax return, you should carry on doing this and include any income from savings on your return.
What if my savings income exceeds my allowance?
If you have any savings income which exceeds your personal savings allowance, you will have to pay some tax on this. HMRC will normally collect the tax by changing your tax code.
Will this change affect savings income received before 6 April 2016?
Interest that relates to periods before 6 April 2016 but paid afterwards will not have tax deducted.
I have a business/treasurers' account, what does this mean for me?
For corporate customers, interest payments on or before 5 April 2016 will be paid gross, subject to sufficient evidence being provided to justify your eligibility for gross interest. Interest paid on or after 6 April 2016 will be paid gross.
If you need any further information on these changes, please click here.