Personal Savings Allowance

Tax-free savings changed from 6th April 2016, with the introduction of the new Personal Savings Allowance. This is the amount you are able to save tax free and will depend on your total taxable income.

What is the Personal Savings Allowance 2018/19?

Everyone has a Personal Savings Allowance (PSA). This is a maximum amount of savings income your savings can earn without being taxed, and is decided based on your total taxable income.

The Personal Savings Allowance was introduced on 6th April 2016, and was a radical reform that meant savers only have to pay tax on the interest that exceeds their personal allowance.

The personal savings allowance 2018/19 for basic rate taxpayers is £1,000.

In this guide, you will find information on:

  • What is my personal savings allowance?
  • What is savings income?
  • Does ISA interest count as savings income?
  • Who pays tax on joint account interest?
  • How do I claim back tax I’ve paid on other savings income?
  • Is Personal Savings Allowance in addition to Personal Allowance?

What is my Personal Savings Allowance?

Your Personal Savings Allowance depends on which tax band you fall into. See the table below showing the different savings allowances per tax threshold.

 

Band

Personal Savings Allowance

Individuals

No tax to pay

Basic Rate

No tax to pay up to £1,000

Higher Rate

No tax to pay up to £500

Additional Rate

No Allowance

 

If you’re not sure which UK tax band you fit into, refer to the table below.

 

Band

Taxable Income

Individuals

Up to £11,850

Basic Rate

£11,851 to £46,350

Higher Rate

£46,351 to £150,000

Additional Rate

Over £150,000

 

What is savings income?

Savings income includes:

  • Any interest your savings earn
  • 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 contracts for life insurance

Does ISA interest count as savings income?

No, ISA income does not count towards your Personal Savings Allowance. So you can earn tax-free interest, and still benefit from the full £1,000 Personal Savings Allowance.  For more information on the tax benefits of saving with a Cash ISA, read our full guide here.

The following also doesn’t count towards your Personal Savings Allowance:

  • Any savings income that’s covered by a saver’s tax-free personal allowance or the 0% rate for savers with lower earnings
  • Dividend distributions (these are covered separately by the Dividend Allowance. Find more on that here)
  • Account rewards that are not interest or returns on amounts saved

Who pays tax on joint account interest?

If you share a savings account with your spouse or partner, your Personal Savings Allowance still applies. Taxation on joint accounts is split equally, so you should count 50% of the account’s interest towards your own Personal Savings Allowance.

This is even the case if you and your partner are in two different tax thresholds. For example, if you are a basic rate taxpayer and your partner is a higher rate taxpayer, then half of the interest will count towards your basic rate PSA of £1,000 and half will count towards your partner’s higher rate PSA of £500.

How do I claim back tax I've paid on other savings income?

You can claim back any tax that was wrongfully taken off by filling in an R40 form (or an R43 if you live overseas), and sending this to HMRC.

Self-assessment tax return forms are available online at Gov.uk. It’s important to remember to complete your self-assessment before the deadline.

Is Personal Savings Allowance in addition to Personal Allowance?

Yes, your Personal Savings Allowance and your Personal Allowance are completely separate. Your Personal Allowance is the amount you can earn without having to pay income tax, whereas your Personal Savings Allowance exclusively applies to any earnings your savings make.

Still unsure about paying tax on savings interest for 2018/19? Find out more about your Personal Savings Allowance by popping into your nearest Newcastle Building Society branch. Alternatively, speak with a member of our Savings Team today on 0345 734 4345.