Tax on interest – The Personal Savings Allowance (PSA)
On 6 April 2016, HMRC introduced to us all the Personal Savings Allowance (PSA). You could earn up to £1,000 of interest per tax year on non-ISA savings accounts before having to pay tax on the interest.
- most people will no longer pay tax on savings interest
- banks and building societies will stop deducting tax from your account interest
Note that the Interest from cash ISAs do not count towards your PSA, as it is already tax-free. Interest from National Savings and Investments (NS&I) tax-free products, namely Fixed Interest Savings Certificates and Index-linked Savings Certificates; and prizes won from Premium Bonds, also doesn’t count towards your Personal Savings Allowance because it’s already tax-free.
The amount of your Personal Savings Allowance will depend on your income tax rate:
- If you’re a basic rate taxpayer, you can earn up to £1,000 of interest without paying tax.
- If you’re a higher-rate taxpayer, you can earn up to £500 of interest without paying tax.
- If you’re an additional rate taxpayer (45%), you don’t get an allowance.