Personal Savings Allowance
Since April 2016, most UK taxpayers have received a ‘Personal Savings Allowance’. This means you don’t need to pay tax on interest earned from your savings up to a certain limit.
How much is the Personal Savings Allowance?
Your Personal Savings Allowance will depend on what tax bracket you fall into:
| Tax bracket |
Personal Savings Allowance |
|---|---|
| 20% tax bracket |
Up to £1,000 |
| 40% tax bracket |
Up to £500 |
| Additional rate taxpayers |
No allowance |
What is savings income?
Savings income is the amount of money you earn from your savings. This includes:
- interest from banks and building societies
- interest from other account providers, such as credit unions
- interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
- income from government, or company bonds
- some types of purchased life annuity payments
- gains from certain life insurance contracts
Are all savings accounts covered under the Personal Savings Allowance?
Individual Savings Accounts (ISAs) and some National Savings and Investments (NS&I) products are excluded from the Personal Savings Allowance. This is because the interest they earn is already tax-free.
What if your savings income exceeds the Personal Savings Allowance?
If your savings interest exceeds your Personal Savings Allowance, HMRC will collect any tax you owe. This is usually done through a change to your tax code (based on information provided by banks and building societies), or through your annual tax return if you complete one.
What if you’ve paid too much tax on your savings interest?
If you’ve paid too much tax, you may be able to claim this back. You’ll need to fill in form R40 (or form R43 if living outside the UK) and send it to HMRC. These forms are available online at GOV.UK. You can claim back overpaid tax on your savings from up to 4 years prior.
What if your accounts relate to an organisation, or an estate?
Only individuals get a Personal Savings Allowance. If your accounts relate to a business, charity, club or association, they'll earn interest without tax deducted.
If you’re a trustee or are administering an estate, HSBC won’t deduct the tax from the credit interest paid. Any tax due will have to be paid through the trust/estate tax return.
What next?
Opening a savings account can help you boost your savings. Take a look at the different types of accounts to see what could suit your needs. If you need more guidance on your Personal Savings Allowance, visit the HMRC, or speak to a tax advisor.
