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This publication is available at https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance
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 Allowance.
- most people will no longer pay tax on savings interest
- banks and building societies will stop deducting tax from your account interest
If you already receive interest without tax being taken off, you’ll no longer need to tell your bank or building society that you qualify for tax-free interest.
2. What counts as savings income
Savings income includes account interest from:
- bank and building society accounts
- accounts with providers like credit unions or National Savings and Investments (NS&I)
It also includes:
- 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
Interest from Individual Savings Accounts, known as ‘ISAs’, does not count towards your Personal Savings Allowance because it’s already tax-free.
Interest from NS&I tax-free products, namely Fixed Interest Savings Certificates and Index-linked Savings Certificates, also prizes won from Premium Bonds, do not count towards your Personal Savings Allowance because they are already tax-free.
3. If your taxable income is less than £17,500
If your total taxable income is less than £17,500 you will not pay tax on any savings income.
4. How much your Personal Savings Allowance will be
The amount of your Personal Savings Allowance depends on your adjusted net income.
The table shows your allowance from 6 April 2017, depending on whether you’re a basic, higher or additional rate taxpayer.
|Tax rate||Income band (adjusted net income)||Personal Savings Allowance|
|Basic 20%||Up to £43,500||Up to £1,000 in savings income is tax-free|
|Higher 40%||£43,501 - £150,000||Up to £500 in savings income is tax-free|
|Additional 45%||Over £150,000||No Personal Savings Allowance|
5. Examples: basic rate
5.1 You earn £20,000 a year and get £250 in account interest
You will not pay any tax on your interest, because it’s less than your £1,000 Personal Savings Allowance.
5.2 You earn £20,000 a year and get £1,500 in account interest
You will not pay tax on your interest up to £1,000. But you’ll need to pay basic rate tax (20%) on the £500 interest over your Personal Savings Allowance.
6. Examples: higher rate
6.1 You earn £60,000 a year and get £250 in account interest
You will not pay any tax on your interest, because it’s less than your £500 Personal Savings Allowance.
6.2 You earn £60,000 a year and get £1,100 in account interest.
You will not pay tax on your interest up to £500. But you’ll need to pay higher rate tax (40%) on the £600 interest over your Personal Savings Allowance.
7. What you need to do
You do not need to do anything to claim your Personal Savings Allowance.
If you fill in a Self Assessment tax return you should carry on doing this as normal.
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.
For sole bank account holders, not in Self-Assessment, 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’re a joint bank account holder, not in self-assessment, then please contact HMRC and report the saving income or interest as appropriate.