On 6 April 2016 the Government introduced the Personal Savings Allowance, which is the amount the Government allows you to receive in savings’ interest each year (excluding ISA) before you need to pay tax on your interest.
From 6 April 2016 your annual Personal Savings Allowance is £1,000 or £500.
£1,000 – if you are a basic rate taxpayer the first £1,000 interest you receive each year will be tax-free.
£500 – if you are a higher rate taxpayer the first £500 interest you receive each year will be tax-free.
Additional rate taxpayers do not receive a Personal Savings Allowance.
Am I a basic rate taxpayer or higher rate taxpayer?
This will depend on your personal circumstances, including your income, and is determined by HMRC who set the thresholds each year between basic rate tax and higher rate tax. HMRC issue UK residents with their individual tax codes each year. The thresholds between basic, higher and additional rate tax bands may vary from year to year. To find out more about your tax code go to www.gov.uk.
How will I know if I need to pay tax on interest I have received?
Banks will continue to report to HMRC each year the interest they have paid each of their account holders. HMRC will notify any individuals who are required to pay tax on any interest they have received. Where possible HMRC aim to collect any interest due on savings automatically from income such as salary by adjusting the individual’s tax code. Account holders remain responsible for paying tax on interest advised to them by HMRC.
Individuals who submit a tax return should continue to do so and continue to include the interest they have received.
The Personal Savings Allowance applies only to individuals. Entities such as companies, charities, associations, clubs and societies will continue to receive interest without the deduction of tax, but should continue to report interest they have received in their tax return as is currently the case. To find out whether your organisation should pay tax on interest received please contact HMRC or your professional tax adviser.
Accounts held in joint names
HMRC deem interest paid to joint accounts to be shared equally between each account holder. Each account holder can use their Personal Savings Allowance against their share of the interest.
Non-UK residents (for tax purposes)
As with UK residents, you will receive interest without the deduction of tax. HMRC will contact you if they think you have tax to pay on any interest you have received in the UK. You may have tax to pay on your UK savings income in the jurisdictions where you are resident for tax purposes. For further information you should contact the tax office in your local jurisdictions or your professional tax advisor. For further information on tax reporting under CRS or FATCA please click here.
