Tax on savings

From 6 April 2016, if you’re a basic rate taxpayer you’ll be able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowance.

Banks and building societies will no longer deduct tax from the interest they pay you.

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

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.

If your taxable income is less than £17,000

If your total taxable income is less than £17,000 you won’t pay tax on any savings income.

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 2016, depending on whether you’re a basic, higher or additional rate taxpayer.

 

Tax rate

Income band (adjusted net income)

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

 

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