New Personal Savings Allowance (PSA)

From 6 April 2016, if you’re a basic rate taxpayer you’ll be able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowan​ce.

This means:

  • most people will no longer pay tax on savings interest
  • banks and building societies will stop deducting tax from your account interest
  • account interest will be paid gross

 

If you already receive interest without tax being taken off, you’ll no longer need to tell the bank that you qualify for tax-free interest.


 

Personal Savings Allowance

The amount of your Personal Savings Allowance depends on your adjusted net income.

The table shows your allowance from 6 April 2016, depending on whether you’re a basic, higher or additional rate taxpayer.​


 

Tax Rate Income Bank(adjusted net income) Personal Savings Allowance
Basic 20% Up to £43,000 Up to £1,000 in savings income is tax-free
Higher 40% £43,001 - £150,000 Up to £500 in savings income is tax-free
Additional 45% Over £150,000 No Personal Savings Allowance


 

If your total taxable income - for example, from wages, profits, pensions and savings - is less than £17,000, then you won’t pay any tax on your savings income.


 

What you need to do

You don’t need to do anything to claim your Personal Savings Allowance. 

​If you’re a basic rate taxpayer and have savings income or interest of more than £1,000 (£500 for higher rate taxpayers), you’ll have to pay some tax on this. But you don’t need to do anything yet.

HMRC will normally collect the tax by changing your tax code. Banks and building societies will give HMRC the information they need to do this. 

If you fill in a Self Assessment tax return you should carry on doing this as normal.

If you have any queries please contact your local branch or refer to HMRC.​​​​​​​​​​​​​​

HMRC - A guide to the Personal Savings Allowance​​​​

 

FAQ

What is savings income?

Savings income includes:

  • interest from banks, building societies and other account providers (such as credit unions and NS&I)
  • interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • income from government or company bonds
  • some types of purchased life annuity payments and gains from certain contracts for life insurance

Does income from ISAs count towards my Personal Savings Allowance?

No, income from ISAs does not count towards your Personal Savings Allowance.

Will the changes affect savings income received before 6 April 2016?

No, changes only apply to savings income paid after 6 April 2016.

Do taxpayers need to tell account providers about other savings income or their tax rate?

No, taxpayers do not need to give any information about their tax circumstances or other savings income to their account provider.

If my taxable income is less than £17,000, what will the changes mean for me?

From 6 April 2016, if your total taxable income - for example, from wages, profits, pensions and savings - is less than £17,000, they you won’t pay any tax on your savings income.

I am a basic rate taxpayer, what do the changes mean to me?

From 6 April 2016, if you are a basic rate taxpayer, up to £1,000 of your savings income will be tax-free.
For example, if you earn £20,000 a year and receive £250 in account interest, you won’t pay tax on your interest because it’s within your £1,000 Personal Savings Allowance. If you earn £20,000 a year and receive £1,500 in account interest, you only need to pay tax on £500 of interest because your Personal Savings Allowance covers £1,000.

I am a higher rate taxpayer, what do the changes mean to me?

From 6 April 2016, if you are a higher rate taxpayer, up to £500 of your savings income will be tax-free. For example, if you earn £60,000 a year and receive £250 in account interest, you won’t pay any tax on your interest because it’s within their £500 Personal Savings Allowance. If you earn £60,000 a year and receive £1,100 in account interest, you only need to pay tax on £600 of interest because your Personal Savings Allowance covers £500.

I am an additional rate taxpayer, do I get a Personal Savings Allowance?

No, you will not receive a Personal Savings Allowance.

I have a registered account to receive interest without tax taken off, what do I need to do?

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

What about interest paid on PPI and other compensation payments?

Banks and building societies will still be required to take tax from any compensation interest paid. Tax will be deducted from Credit Interest at basic rate tax (20%). Customers may be able to claim the tax back by filling in form R40 (or form R43 if living overseas) and sending it to HMRC. These forms are available online at GOV.UK

How do I claim back tax paid on other savings income?

From 6 April 2016, banks and building societies will pay account interest with no tax taken off. However, customers may still receive other types of savings income with tax taken off. They may be able to claim this tax back by filling in form R40 (or form R43 if living overseas) and sending it to HMRC. These forms are available online at GOV.UK

I am a basic rate taxpayer and my partner’s a higher rate taxpayer; which Personal Savings Allowance applies to my joint account - £1,000 or £500?

You and your partner will both receive a Personal Savings Allowance (£1,000 for the basic rate taxpayer, £500 for their partner) which you will use against your share of the interest.

I am; a business / a charity / a club / an association / a trustee / administering an estate – what does this mean for to me?

Only individuals get a Personal Savings Allowance.
If you are a business, charity, club or association, you will already receive interest without tax taken off.
If you are a trustee or are administering an estate, banks and building societies will no longer deduct tax from the interest they pay, so any tax due will have to be paid through the trust/estate tax return, where appropriate.

Am I still require to submit R85 or R105?

No, there is no longer the requirement to submit R85 or R105 from 6 April 2016

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