04 Jan Personal Savings Allowance
A new Personal Savings Allowance (PSA) will be launched in April that will remove 95% of taxpayers from paying tax on their savings. According to the government this measure will mean that 18 million people will benefit from a tax reduction on their savings income, on average of £25 each year.
From April 2016 basic-rate taxpayers will no longer pay tax on the first £1,000 interest of savings income. For higher-rate taxpayers, the tax-free personal savings allowance will be £500. Anyone earning over £150,000 will not benefit from the savings allowance.
In tandem with the introduction of the new Personal Savings Allowance, banks and building societies will stop taking 20% Income Tax from interest earned on non-ISA savings. Whilst interest rates are currently at or near historic lows the giveaway may not seem that large. Nonetheless most savers will benefit from the new rules.
New legislation will be included in Finance Bill 2016 to introduce a new 0% rate (the ‘savings nil rate’) for savings income received by individuals.