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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