What you need to know about the personal savings allowance


From 6 April, the Government’s new Personal Savings Allowance will be introduced. It’s estimated that 95% of UK savers will no longer pay any tax on their savings income as a result.

This is a major change for UK savers, so what does it mean for Al Rayan Bank’s customers? We answer some of your questions.

Q: What is the Personal Savings Allowance?

A: 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

Q: Does this mean profits from my Sharia-compliant accounts will be tax-free from April?

A: Yes, within your Personal Savings Allowance limits. HM Revenue & Customs (HMRC) has confirmed that profits from Sharia compliant savings accounts will benefit from the Personal Savings Allowance.

Q: I hold an Al Rayan Bank ISA. Will the profit I earn from it count towards my Personal Savings Allowance?

A: No. Profit from your ISA is already tax free and won’t count towards your Personal Savings Allowance limit. It will still be paid tax free. So, if you earn £100 in ISA profit, and you're a basic-rate taxpayer, you'll still have the £1,000 Personal Savings Allowance to cover other savings income.

Q: I hold an Al Rayan Bank savings account and I pay tax on the profit. How will I be affected?

A: From 6 April you will no longer pay tax on the profit as long as you remain within your Personal Savings Allowance.

For example, the Al Rayan Bank 24 Month Fixed Term Deposit has an expected profit rate of 2.78%*. If a 24 Month FTD matures after 6 April 2016, savers will be taxed for the period of time before 6 April but not for the period of time after 6 April 2016.
If the FTD matures before 6 April, it will be subject to existing tax rules.

*When the profit is reinvested and paid on maturity

Q: What happens when I exceed my personal tax allowance?

A: Any profit that exceeds your Personal Savings Allowance will be taxed by HM Revenue & Customs (HMRC) through either Pay As You Earn (PAYE) or self-assessment.

Q: How much will I need to pay?

A: This will depend on the amount of tax you pay, and also your ‘adjusted net income’. Your adjusted net income is total taxable income less certain tax relief and can be calculated following the straightforward steps on the HMRC website.

Q: Do I have to register with anybody for the Personal Savings Allowance?

A: No. From 6 April 2016 all profit will automatically be paid without being taxed. If you fill in a Self-Assessment tax return you should carry on doing this as normal.
You can find out more information about the Personal Savings Allowance on Gov.UK. If you have any questions about how the new allowance will affect your accounts with us, please either call us on 0800 408 6407 or visit your local branch.

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