Tax on savings interest

If you have taxable income of less than £17,570 in 2023-24 you will have no tax to pay on interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,570 personal allowance. In addition, there is also a Personal Savings Allowance (PSA). This allowance ensures that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free (effectively allowing qualifying basic-rate taxpayers to receive up to £18,570 in tax-free interest per year). For higher-rate taxpayers the tax-free personal savings allowance is £500. Taxpayers paying the additional rate of tax on taxable income over £125,140 cannot benefit from the PSA.

It is important to note that if your total non-savings income exceeds £17,570 then the starting rate limit for savings is unavailable. There is a tapered relief available if your non-savings income is between £12,570 and £17,570 whereby every £1 of non-savings income above a taxpayer's personal allowance reduces their starting rate for savings by £1.

Interest from savings products such as ISA's and premium bond wins do not count towards the limit. Taxpayers with tax-free accounts and higher savings can still continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from bank account interest as a matter of course. Taxpayers who need to pay tax on savings income are required to declare this as part of their annual self-assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years from the end of the current tax year. This means that claims can still be made for overpaid interest dating back as far as the 2019-20 tax year. The deadline for making claims for the 2019-20 tax year is 5 April 2024.

Source:HM Revenue & Customs | 11-03-2024


About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.

Tax on savings interest

Understanding Tax Exemptions on Savings Interest for 2023-24

As a UK taxpayer, knowing how the tax exemptions work on savings interest can be a significant aspect of your financial planning. In this article, we will break down the tax rules for the tax year 2023-24, including the starting rate for savings, the personal savings allowance (PSA), and the procedures for reclaiming overpaid tax.

Important to note is that the deadline for making claims for the 2019-20 tax year is 5 April 2024.

No Tax on Interest for Low Income

If your taxable income is less than £17,570 for the 2023-24 tax year, you won’t have to pay any tax on the interest you receive. This figure comes from the £5,000 starting rate limit for savings (which is taxed at 0%) plus the current £12,570 personal allowance.

However, if your non-savings income surpasses £17,570, the starting rate limit for savings no longer applies.

Tapered Relief for Middle-Income Brackets

For those earning between £12,570 and £17,570 from non-savings income, there’s a tapered relief system. Every £1 of non-savings income over your personal allowance reduces your starting rate for savings by £1.

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The Personal Savings Allowance

The Personal Savings Allowance (PSA) is another feature of the tax system that is beneficial to many savers. For basic-rate taxpayers, the first £1,000 of savings income interest is tax-free, while for higher-rate taxpayers, the tax-free allowance stands at £500. However, if you’re an additional rate taxpayer, with a taxable income of over £125,140, the PSA does not apply.

Interest from ISA's and Premium Bonds

It’s important to note that interest from ISAs and premium bonds does not count towards these limits. So even if you have these types of savings, you can still benefit from the PSA.

Deduction of Tax from Savings Interest

Banks and building societies no longer automatically deduct tax from savings interest. If you’re required to pay tax on your savings income, you’ll need to declare this in your annual Self-Assessment tax return.

Reclaiming Overpaid Tax on Savings Interest

If you’ve overpaid tax on your savings interest, you can submit a claim to have it repaid. Claims can be backdated for up to four years from the end of the current tax year. This means that as of the 2023-24 tax year, you can still make claims for overpaid interest dating back to the 2019-20 tax year.

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About the Author
Haroon Muhammad

Haroon Muhammad boasts 17 years of comprehensive experience in tax, financial services, and local government. His sheer love for tax drives his mission to save clients money and optimise their financial strategies. Haroon is dedicated to navigating complex financial landscapes with precision and delivering exceptional results for his clients.