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PSA guide

The Personal Savings Allowance

 
Find out how the Personal Savings Allowance affects the way you receive interest on your savings.
 

Our guide will help you find out how the Personal Savings Allowance will affect you.

How interest is paid on your savings

All savings accounts (from every bank and building society) pay gross interest. This means that no tax will be deducted from any interest you earn. ISA accounts pay interest tax free.

This applies to interest paid from all banks and building societies, credit unions, NS&I as well as some investments and government or company bonds.

Personal Savings Allowance Explained

If you are a basic rate tax payer you can earn up to £1,000 of interest without having to pay any tax. If you’re a higher rate tax payer, you can earn up to £500 without having to pay any tax. Additional rate tax payers won’t receive any allowance at all.

Please note, HMRC anticipate that around 95% of taxpayers will not have any tax to pay on their savings income.

How does the Personal Savings Allowance work?

The example below shows how the Personal Savings Allowance could affect you (based on £1,200 gross annual interest earned).

Basic rate tax payer (20%)


Before 6 April 2016

You would have kept £960 of your interest

£240 paid in tax

Now

You keep £1,160 of interest earned

£40 paid in tax

Higher rate tax payer (40%)


Before 6 April 2016

You would have kept £720 of your interest

£480 paid in tax

Now

You keep £920 of interest earned

£280 paid in tax

Please note these are only examples and you should refer to HMRC if you are unsure of your personal tax position. You can visit the HMRC website to find out more.

The table below gives you some more detail on how the Personal Savings Allowance affects you, depending on your tax bracket:

Zero tax rate (your taxable income less than £17,500) Basic tax rate (20%) Higher tax rate (40%) Additional tax rate (45%)
Personal Savings Allowance N/A - you don’t pay any tax on your savings income. £1,000 £500 N/A - you will pay tax on all of your savings income except income from ISAs
 

Frequently asked questions


 

What about any tax due on interest above my allowance?

If the interest you earn in a year is more than your Personal Savings Allowance on all non-ISA accounts you need to pay tax owed to the HMRC. You can get information on how to pay any tax due directly from HMRC - you can visit the HMRC website or call 0300 200 3300 for more information. It is your responsibility to pay this tax.

Whether you need to pay tax is dependent on your own personal circumstances and maybe subject to change in the future.
 

How does the Personal Savings Allowance affect ISAs?

ISAs are tax free savings accounts, so the interest earned in an ISA doesn't count towards your Personal Savings Allowance.
 

If you’re still not sure you can speak to us in branch

If you’re still not sure how the Personal Savings Allowance will affect you and any savings accounts you have, you can come into a branch for a savings review. This will ensure that you have the right account for whatever you’re saving for.


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