There have been changes to the policy on tax on savings income. Savings income is income such as bank and building society interest.
The Savings Allowance (SA) was first introduced for the 2016/17 tax year and applies to savings income. The available SA in a tax year depends on the individual’s marginal rate of income tax.
Broadly, individuals taxed at up to the basic rate of tax have an SA of £1,000. For higher rate taxpayers, the SA is £500 whilst no SA is due to additional rate taxpayers.
Most people can earn some interest from their savings without paying tax.
Your allowance for earning interest tax-free is made up of the following:
- Personal Allowance.
- Starting rate for savings – depending on your other income.
- Personal Savings Allowance – depending on your Income Tax band.
Savings covered by your allowance
Your allowance applies to interest from:
- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
- government or company bonds
- life annuity payments
- some life insurance contracts
Savings already in tax-free accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments accounts don’t count towards your allowance.