From April 2016, you won’t have to pay tax on interest received up to £1,000 (if you are a standard rate taxpayer), or £500 if you pay tax at the higher rate.
Therefore, to be eligible for this new allowance in 2016-17:
- Your taxable income needs to be less than £42,700 a year to qualify for the £1,000 PSA, or,
- Your income needs to be between £42,701 and £150,000 to qualify for the £500 PSA.
To facilitate this change, from April 2016 banks and building societies will stop automatically taking the 20% Income Tax from the interest earned on your non-ISA savings accounts.
Readers who receive substantial interest on their non-ISA savings should take this latter fact into account. For 2016-17 their investment income could create an increase in underpayments in their tax position as they will receive their interest gross, no tax deducted. For example, there will be those who haven’t had to pay tax to HMRC because all their income was taxed at source. This group may be required to pay their tax separately in future.
This could particularly affect certain pensioners and the like benefitting from the £5000 nil “savings rate” of tax applying for 2015-16 only.
