Personal Savings Allowance

Explains how the Personal Savings Allowance works.

The personal savings allowance was introduced on the  6 April 2016 and due to the low interest rates at the time it meant that most people no longer paid tax on their savings income. With higher interest in recent years more people are now earning interest above the allowance and will need to pay tax on their savings interest. The allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. (There is no allowance for additional rate taxpayers.) Interest from ISAs doesn’t count towards your personal savings allowance because it’s already tax-free.

Building societies and banks no longer deduct tax from the interest they pay on your savings. You may have previously completed a form to receive interest tax-free (an R85 or R105). You no longer need to do so.

If you have any savings income over your personal savings allowance you will have to pay some tax on this. HMRC normally collect the tax by changing your tax code.

If you already fill in a self-assessment tax return you should carry on doing this and include any income from savings on your return.

Joint accounts

If you have a joint account with a building society, interest is normally divided equally for tax purposes between you and the other joint holder.

If one of you is a basic rate taxpayer and your partner a higher rate taxpayer you will both receive a Personal Savings Allowance (£1,000 for the basic taxpayer, £500 for their partner) which you can use against your share of the interest.

Children’s accounts

There is no change to the HMRC rule on gifts to children. This means that if a child’s savings interest arising from money given by a parent exceeds £100 it will be treated as that of his/her parent or step-parent and count toward that parent’s or step-parent’s PSA. Interest from a Junior ISA does not count towards a parent’s personal tax allowance as that is already tax-free. The £100 limit only applies to parents and step-parents. Grandparents and other adults who give money to children are not liable to pay the tax if the interest exceeds £100 a year.

Business/charity/club/trustee/administrator of estate

Only individuals receive a Personal Savings Allowance. Interest on business, club, charity or association accounts will continue to be paid gross (tax-free). If you are a trustee or administering an estate your building society will no longer deduct tax from the interest they pay – any tax due will have to be paid through a tax/estate return.

Reclaiming overpaid tax

To reclaim any overpaid tax you will need to complete an R40 form and send it to HMRC. You can download this form by clicking here.

You can also reclaim tax from earlier years by completing an R40 (or form R43 if living overseas) form for each year. 

Useful links -

HMRC - tax on savings interest

BSA Factsheet on ISAs and Junior ISAs


Simon Rex