Q: What is the Personal Savings Allowance and how can you claim it?
A: From 6 April 2016 a basic rate taxpayer will 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.
This means that most people will no longer pay tax on savings interest and banks and building societies will stop deducting tax from interest bearing accounts.
Savings income includes interest from bank and building society accounts and 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 and most types of purchased life annuity payments.
Interest from Individual Savings Accounts (ISAs) doesn’t count towards the Personal Savings Allowance because it’s already tax free. Equally this also applies to interest on National Savings and Investments tax free products, namely Fixed Interest Savings Certificates and Index-linked Savings Certificates; and prizes won from Premium Bonds, also doesn’t count towards the Personal Savings Allowance because it’s already tax-free.
The allowance is dependent on whether you’re a basic, higher or additional rate taxpayer.
Taxpayers do not need to do anything to claim the Personal Savings Allowance. A basic rate taxpayer with savings income or interest of more than £1,000 (£500 for higher rate taxpayers), will have to pay some tax on this.
Employed taxpayers will pay any liability via their tax code and those within self-assessment will include their taxable savings income on their self-assessment tax return.