As inflation and import costs have risen, shoppers have been hit with bigger bills when… Read more »
Personal Savings Allowance – The Benefits for You
The Personal Savings Allowance (PSA) was introduced in April 2016 by the Government as a way to increase the rewards of saving after years of low interest rates. It has increased the threshold of interest you can earn on savings and current accounts before being taxed on it.
For basic rate taxpayers, those that earn above £11,000 and below £43,000, can now earn £1000 in interest on your savings tax-free. Higher rate taxpayers, those that earn above £43,000 and below £150,000, can earn £500 in interest before being taxed.
However, if you earn over £150,000, you have no PSA and will be taxed on all savings interest. Alternatively, if your total taxable income is under £17,000 you won’t pay any tax on savings. However, this does not make you exempt from income tax and national insurance – dependent on your take home pay from employment.
There are many benefits of this new allowance, specifically for those on lower incomes. This will make saving work for them regardless of the economic situation. Some of these benefits include:
- Most people will no longer have to pay tax on their savings interest, as to earn £1000 in interest you would have to be saving anything up to £69,000 in some accounts.
- Banks and building societies will stop deducting tax from your account interest straight away making this a hassle free change to your finances.
- It makes saving pay after many years of lower interest rate return on your savings and high taxes being removed. As a result, most of your interest and savings are exempt from taxation.
- ISA’s don’t count towards your PSA as they have and continue to be tax-free. What you deposit in your ISA is already safe from tax and will not damage your PSA. Therefore this leaves you with the full amount of PSA left to make use of as you wish.
Now you are aware of the benefits, you should know what types of accounts and products your PSA applies to.
- Your bank and/or building society accounts
- Any accounts with credit unions or national savings and investments
- Any income from your Government or company bonds
- Many types of purchased life annuity payments
- Any interest distributions from investment trusts, authorised unit trusts and/or open-ended investment companies. This does not include dividend distributions.
Most people have an account like this and are eligible for PSA of £1000 or £500, dependent on their financial situation. There is nothing you need to do to set it up. Since it is automatic, cost-free and hassle-free for you.
It was set up to offer great benefits and financial relief to those who need it, make sure you don’t miss out on gaining tax free interest on eligible savings.