Did you know that banks and building societies are no longer deducting tax from the interest they pay you on any 
savings accounts you may have?
Through the newly introduced Personal Savings Allowance basic rate taxpayers can earn up to £1,000 in savings income tax-free whilst higher rate taxpayers can earn up to £500.
This means that most people will no longer pay tax on savings interest
If you already receive interest without tax being taken off, you’ll no longer need to tell your bank or building society
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.
There’s further good news if your total taxable income is less than £17,000 as you’ll no longer be paying tax on any savings income.
This new approach to taxable interest on savings through the Personal Savings Allowance is designed to benefit those on low incomes. 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
|
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 |
