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.
Savings income includes account interest from:
- bank and building society accounts
- accounts with providers like credit unions or National Savings and Investments
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 (ISAs) doesn’t count towards your Personal Savings Allowance because it’s already tax-free
If your total taxable income is less than £17,000 you won’t pay tax on any savings income
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 band (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|
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.