Personal Savings Allowance
What is the Personal Savings Allowance?
From April 2016, a new Personal Savings Allowance is being introduced meaning most UK adults will be able to earn up to a certain amount in savings interest without paying tax. As part of this, banks and building societies will no longer automatically deduct tax on interest earned on savings.
For more detailed information please visit the HMRC website.
How much will your Personal Savings Allowance be?
The Personal Savings Allowance depends on what rate of tax you pay:
- If you earn less than £17,000 you will not have to pay tax on your savings interest.
- If you are a basic-rate taxpayer (20%) and earn up to £43,000 a year you will be able to earn £1,000 a year interest without paying tax.
- If you are a higher-rate taxpayer (40%) and earn between £43,001 and £150,000 a year you will be able to earn £500 a year interest without paying tax.
- If you are an additional-rate (45%) taxpayer you will not receive a Personal Savings Allowance.
You will be required to pay tax on any interest earned above the amount of your Personal Savings Allowance.
Interest that relates to periods before 6 April 2016 but paid afterwards will not have tax deducted.
What accounts does this impact?
The changes will impact all interest earned on savings and current accounts. Savings held in Leeds Building Society offset accounts don’t earn interest so these will not be affected. Interest on ISA’s is already paid tax-free and will not count towards your Personal Savings Allowance.
If you have a joint account, both account holders will receive a Personal Savings Allowance which will be used against each account holder’s share of the interest.
Only individuals receive a Personal Savings Allowance. If you are business, charity club or association you will already receive interest without tax taken off.
How do I find out how much interest I’ve earned?
If you would like to know how much interest you have earned on your savings you should contact your bank or building society. If you save with Leeds Building Society you can request a Statement of Interest. Please call our Savings contact centre team on 03450 50 50 75.
What do I need to do if I think I need to pay tax on my interest?
If you have any savings income over your Personal Savings Allowance you will have to pay tax on this. HMRC will normally collect the tax by changing your tax code.
If you think you need to pay tax on your savings interest or are unsure how the changes might impact you then you will need to seek independent advice or visit HMRC’s website for further information.
If you currently complete a self-assessment tax return you should continue to do so and include any income from savings on your return.
How does this impact schemes relating to tax exemption for HMRC?
From April 2016 banks and building societies will no longer deduct tax from savings interest. This means that any R85 forms or other tax exemption schemes you are currently part of will no longer be valid and you won’t need to complete an R85 form to be exempt from interest tax in the future.
If eligible, you can claim tax back on savings interest by filling in a R40 form and sending it to HMRC. These forms are available on Gov.uk.
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide and you must make your own decisions, we recommend that you seek legal and/or financial advice if you have any questions or queries.