What is the Personal Savings Allowance?
Since the introduction of the personal savings allowance on 6 April 2016, most people no longer pay tax on their savings income. The allowance is £1,000 of savings interest per year for basic rate taxpayers and £500 of savings interest per year for higher rate taxpayers. (There is no allowance for additional rate taxpayers.) Interest from ISAs doesn’t count towards your personal savings allowance because it’s already tax-free.
What does this mean to you?
- From 6 April 2016, all building societies and banks stopped deducting tax from the interest they pay on your savings.
- You do not have to complete a HM Revenue & Customs (HMRC) form to receive interest tax-free (an R85 or R105 form).
- If you have any savings income over your personal savings allowance you will have to pay some tax on this. HMRC will normally collect the tax by changing your tax code.
- If you already fill in a self-assessment tax return you should carry on doing this and include any income from savings on your return.
- Interest that relates to periods before 6 April 2016 but paid afterwards will not have tax deducted.
- In a few isolated cases, some interest – for example, on compensation – will still have tax deducted. This interest counts towards your personal savings allowance. If you have any questions and/or need to reclaim this tax, please contact HMRC.