- Basic rate taxpayers – up to £1,000 of savings income tax free
- Higher rate taxpayers – up to £500 of savings income tax free
- Additional rate taxpayers – no allowance at all
The personal savings allowance is in addition to the £5,000 0% savings tax rate band applied since 5th April 2015, for lower income individuals.
From the same date, 6th April 2016, Banks and Building Societies will cease to deduct income tax from interest payments.
So… how will HM Revenue & Customs collect tax due on interest payments above the tax free allowances.
- If the tax payer is in self assessment, their interest income will be reported and tax collected in the usual way.
- PAYE taxpayers will pay the tax due via an adjustment to their PAYE code. The adjustment will be based on information provided by financial institutions. Greater care will be needed when checking PAYE notices of coding.