Personal Savings Allowance

Whether you’re a basic or higher-rate taxpayer you're entitled to a Personal Savings Allowance (PSA). For most people, this means you can earn more savings interest without paying tax.

The PSA applies not just to the interest you earn from savings accounts, but from bank accounts and credit unions too. Interest that is from ISAs does not count towards this allowance and is still completely free from income tax.

How much is the Personal Savings Allowance?

Your allowance depends on whether you’re a basic, higher or additional-rate taxpayer. 

In England and Wales, if you’re a basic-rate taxpayer (your total taxable income is less than £46,350 in the tax year), you can earn up to £1,000 of interest without paying tax. If you’re a higher rate taxpayer, with taxable income between £46,350 - £150,000, it's £500. Thresholds differ in Scotland.

 Additional-rate taxpayers, with an income of more than £150,000, won’t get a PSA. Like everyone else, they can still use their annual ISA allowance to keep their savings free from tax. 

You will need to pay tax at the applicable rate for anything over your PSA.

How much can I save without paying tax?

The table below shows how much you could put away in savings, based on an interest rate of 1.5% p.a., before having to pay tax on the interest.

Basic rate taxpayer Higher rate tax payer
Interest Without Paying Tax Allowance £1,000 £500
Amount Saved (Assumed Interest rate 1.5%) £66,666 £33,333
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Do I need anything to get my PSA? 

No – the Personal Savings Allowance was rolled out automatically, so you don’t need to worry about reclaiming the tax. From 6 April 2016, banks and building societies stopped deducting tax from your savings interest, and will pay it all to you instead. See the HMRC Guidance on PSA for more information.
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How do I pay tax if I go over the PSA? 

If you go over your Personal Savings Allowance, as rebates are provided annually to HM Revenue and Customs, they’ll then collect the tax you owe through your PAYE code, where possible.

If you already fill in a self-assessment tax return e.g if you are self employed, carry on doing this and remember to include your total income from your non-ISA savings. 

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I don't pay tax, does this affect me? 

You may not have to pay tax on your savings – if your income is below a certain threshold, for example. You don’t have to fill in an R85 form to tell us you don’t pay tax on your savings interest.
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Does PSA replace ISA allowances? 

No. The Personal Savings Allowance is in addition to your annual ISA allowance, the interest made on your ISA account remains completely tax-free and does not count towards your Personal Savings Allowance. 

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Do I still need an ISA?

As a general rule, it’s a good idea to make the most of your ISA allowance. If interest rates increase in the future, or you have more money to save at a later date, you might go over your annual Personal Savings Allowance and end up paying some tax. 

By putting money into an ISA, you give yourself more leeway, as Cash ISAs are completely tax-free and the interest you earn doesn’t count towards your PSA.

Also, if you already have funds in ISAs that have built up over time, you’re likely to benefit from leaving them where they are as the interest earned remains exempt from income tax.

If you’re an additional-rate taxpayer (and so not eligible for a PSA), ISAs will continue to give you a great way of earning tax-free interest on savings. 

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What does this mean for my Skipton savings account?

From 6 April 2016 we've paid all savings interest gross, which means no tax is deducted. You don’t need to do anything unless you exceed your Personal Savings Allowance, in which case you will need to contact HMRC.

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Site intended for UK residents only. Skipton Building Society is a member of the Building Societies Association. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under registration number 153706, for accepting deposits, advising on and arranging mortgages and providing Restricted financial advice. Principal Office, The Bailey, Skipton, North Yorkshire, BD23 1DN.

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