Under the Personal Savings Allowance (PSA), the first £1,000 of income from any non-ISA savings is tax free for basic rate taxpayers and £500 for higher rate taxpayers.
No PSA applies for additional rate taxpayers.
The same rules apply irrespective of whether you are a pensioner or in employment, and you can find our more at www.gov.uk.
The following types of income are classed as savings income under the PSA:
- Interest from banks, building societies and other account providers
- Interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
- Income from government or company bonds
- Some types of purchased life annuity payments and gains from certain life insurance contracts
If you have a joint account, the interest is assumed to be split equally between you. So if, for example, you're a basic rate taxpayer and your partner is a higher rate taxpayer, you'll each get your PSA (£1,000 for you and £500 for your partner) and your half of the interest on your joint account will count towards this.
Does income from my ISA count towards my Personal Savings Allowance?
No, the interest on your ISA is already tax free and doesn’t count towards your Personal Savings Allowance.
What happens if I exceed my Personal Savings Allowance?
If the interest you earn is more than your Personal Savings Allowance, HMRC will normally collect the tax by changing your tax code in the PAYE system. If you fill in a Self Assessment tax return you should carry on doing this as normal. Further information is available on the HMRC website.