From 6 April 2016, most people can earn some income from their savings without paying tax.
This is called a Personal Savings Allowance. It applies to each tax year, from 6 April to 5 April the following year.
Personal Savings Allowance
If your total taxable income is £17,000 or less you won’t pay any tax on your savings income.
Otherwise your allowance depends on which Income Tax band you’re in.
|Income Tax band||Tax-free savings income|
You’ll pay tax on any income above this at your usual rate of Income Tax.
Savings covered by the allowance
The allowance applies to interest from:
- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
The allowance also applies to income from:
- government or company bonds
- life annuity payments
- some life insurance contracts
If you go over your allowance
If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically.
If you complete a Self Assessment tax return, report the extra income there.
If you already paid tax on your savings income
You can reclaim tax paid on your savings income if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year.
Fill in form R40 and send it to HMRC. It normally takes 6 weeks to get the tax back.