Personal Savings Allowance
Since 6 April 2016 banks no longer deduct tax from the savings returns you earn. Instead, you have a Personal Savings Allowance (PSA). ISA savings do not form part of your PSA and remain tax-free.
Personal Savings Allowance
The profit earned on a savings account is classed as income. Savers currently pay tax on this income, based on their income tax bracket. Under the new allowance, however, basic rate taxpayers (20%) will be able to earn £1,000 in savings income tax free, whilst higher rate tax payers (40%) will receive a £500 allowance. Additional rate (45%) taxpayers will not receive any allowance.
| Tax rate | Income band (adjusted net income) | Personal Savings Allowance |
| Basic 20% | Up to £43,000 | Up to £1,000 in savings income is tax-free |
| Higher 40% | £43,001 - £150,000 | Up to £500 in savings income is tax-free |
| Additional 45% | Over £150,000 | No Personal Savings Allowance |