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Personal Savings Allowance: a guide

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.

Please note: HMRC rules relating to ISAs and Personal Allowances are subject to change. 

Up to date information is available from HM Revenue and Customs:

What is the Personal Savings Allowance 2022/23?

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.

Please check the gov.uk website for current Personal Savings Allowance rates.

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 my Personal Savings Allowance in addition to my Personal Allowance?
What is my Personal Savings Allowance?

Your Personal Savings Allowance depends on which tax band you fall into.  Please check the gov.uk website for current Personal Savings Allowance rates.

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.

Having said this, savings on joint bank accounts is more complicated and HMRC suggests in this instance contacting them to report the savings income of interest, as appropriate.

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 the gov.uk website. It’s important to remember to complete your self-assessment before the deadline.

Is my Personal Savings Allowance in addition to my 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.

Please note: HMRC rules relating to ISAs and Personal Allowances are subject to change. Up to date information is available from HM Revenue and Customs here.

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