Personal Savings Allowance
The Personal Savings Allowance (PSA) was launched on 6 April 2016. For basic-rate taxpayers the first £1,000 interest on savings income will be tax-free. For higher-rate taxpayers the tax-free personal savings allowance will be £500. Anyone earning over £150,000 will not benefit from the PSA.
Interest from savings products such as ISAs and ‘premium bond wins’ do not count towards the new limit. A basic-rate taxpayer with ISA interest and premium bond wins can still benefit in full from the relevant PSA limits.
Savings income covered under the PSA includes account interest earned from bank and building society accounts as well as accounts with other providers such as 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.
Alongside the introduction of the PSA, banks and building societies will no longer deduct tax from your account interest as a matter of course. Taxpayers who still need to pay tax on savings income will need to declare this as part of their annual Self Assessment tax return. HMRC’s factsheet on the PSA has been updated. The factsheet includes a number of examples on the workings of the PSA for both basic and higher rate taxpayers.