From 6 April 2016 savings will be less taxing – literally. A new Personal Savings Allowance is being introduced and it’s exciting news that affects most savers. Basically basic rate taxpayers could earn up to £1,000 in savings interest tax-free. Higher rate taxpayers could earn up to £500 from their savings before they start paying tax on it. At the moment most people will likely be paying tax on their savings interest, so this could be a real tangible bonus for people looking to make more from their savings.
The beauty of the new allowance is that you do not have to do anything to be eligible for a personal savings allowance. From 6 April savings providers should stop deducting tax on the interest they pay their customers. Banks will send information directly to HMRC so, if you should end-up needing to pay tax (for example if you earn over your personal savings allowance in savings income), then it’s likely your tax code will be adjusted or a Self-Assessment tax return will be required. There may also be some other, easier ways to pay any tax you owe being launched in the future.
Great, what does this mean for savings?
The Personal Savings Allowance is a new change for UK savers and the savings market. While we’re still unsure as to what this means for the future of tax-free savings accounts like ISAs, it’s clear that the majority of savers may no longer pay any tax at all on their savings interest. This can only be good news for these savers.
Income from these sources count towards your personal savings allowance:
Interest earned from your bank and building society savings and current accounts
Accounts with providers such as credit unions or National Savings and Investments.
It also includes:
Government or company bonds
Most types of purchased life annuity payments
Interest distributions (interest earned on investments with authorised unit trusts, investment trusts or open-ended investment companies).
As they already pay interest tax-free, income from Individual Savings Accounts (ISAs) doesn’t contribute to your personal savings allowance and so this change doesn’t mean the death of any existing ISAs you hold. Really this change means that savers have even more options to optimise the income they can make from their savings to help them plan their personal savings goals.
Why haven’t I heard about this before?
It’s a good question and I’m surprised at how little noise is being made about this change. It’s disappointing that, although the new Personal Savings Allowance could have a significant impact on their customers, we’ve heard of several reports of banks not notifying customers about them. I think we’ll hear much more about the personal savings allowance over the coming months.
For now, readers should take time out of their day and brush up on their knowledge of these changes, and think about what this means for their savings mix. The personal savings allowance has the potential to make a real difference to how people save for their futures.
Saving shouldn’t be difficult or full of jargon and we aim to offer UK savers straightforward and competitive savings without gimmicks. We’ll be playing our part in making sure that our customers receive clear and simple information on what these changes mean for them.
For more information on the Personal Savings Allowance visit
Tax depends on your individual circumstances and may be subject to change in the future. RCI Bank do not provide tax, legal or accounting advice. This note has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.