Personal Savings Allowance
Updated 25 January 2018
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1. Introduction
From 6 April 2016, if you鈥檙e a basic rate taxpayer you鈥檒l be able to earn up to 拢1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to 拢500. This is called the Personal Savings Allowance.
This means:
- 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鈥檒l 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 鈥業SAs鈥�, does not count towards your Personal Savings Allowance because it鈥檚 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 拢17,500
If your total taxable income is less than 拢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鈥檙e a basic, higher or additional rate taxpayer.
| Tax rate | Income band (adjusted net income) | Personal Savings Allowance |
|---|---|---|
| Basic 20% | Up to 拢43,500 | Up to 拢1,000 in savings income is tax-free |
| Higher 40% | 拢43,501 - 拢150,000 | Up to 拢500 in savings income is tax-free |
| Additional 45% | Over 拢150,000 | No Personal Savings Allowance |
5. Examples: basic rate
5.1 You earn 拢20,000 a year and get 拢250 in account interest
You will not pay any tax on your interest, because it鈥檚 less than your 拢1,000 Personal Savings Allowance.
5.2 You earn 拢20,000 a year and get 拢1,500 in account interest
You will not pay tax on your interest up to 拢1,000. But you鈥檒l need to pay basic rate tax (20%) on the 拢500 interest over your Personal Savings Allowance.
6. Examples: higher rate
6.1 You earn 拢60,000 a year and get 拢250 in account interest
You will not pay any tax on your interest, because it鈥檚 less than your 拢500 Personal Savings Allowance.
6.2 You earn 拢60,000 a year and get 拢1,100 in account interest.
You will not pay tax on your interest up to 拢500. But you鈥檒l need to pay higher rate tax (40%) on the 拢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鈥檙e a basic rate taxpayer and have savings income or interest of more than 拢1,000 (拢500 for higher rate taxpayers), you鈥檒l 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鈥檙e a joint bank account holder, not in self-assessment, then please contact HMRC and report the saving income or interest as appropriate.