Personal Savings Allowance

Personal Savings Allowance

The Personal Savings Allowance (PSA) was announced in the 2015 Spring Budget but only comes into force in the 2016/17 tax year.

In simple terms a person who is a:

 

  • Basic Rate Taxpayer – the first £1,000 of savings income will be taxed at zero rate
  • Higher Rate Taxpayer – the first £500 of savings income will be taxed at a zero rate
  • Additional Rate Taxpayer – there will be no Personal Savings Allowance

Savings income referred to here is primarily bank and building society interest, the non-capital element of an annuity, interest from gilts, interest distributions from corporate bond funds and also includes chargeable event (when tax becomes payable) on investment bonds.

Although referred to as an ‘Allowance’ the Personal Savings Allowance is more accurately a nil rate tax band which means that it will not actually reduce income in terms of determining if a person is entitled to the full Personal Allowance or other benefits.

So as from the start of the new tax year (6th April 2016) banks and building societies will pay the interest from savings gross. The same will apply for National Savings & Investment (NS&I) that are subject to tax. From 6th April 2017, the same will apply to Open-Ended Investment Companies (OEIC), Authorised Unit Trusts, Investment Trust companies as well as Peer-to-Peer Loan Arrangements.

If you’re questioning the use of having an ISA after reading this, there are still benefits to ISA, such as;

  • They enable an investor to build up a completely tax free portfolio (and no tax returns)
  • They’ll be even more attractive if interest rates rise in the future
  • Cash ISAs can be converted or transferred into stocks and shares ISA in the future
  • Additional Rate Tax payer don’t qualify for Personal Savings Allowance and so an ISA is still a key asset

If you would like to talk through your entitlement to Personal Savings Allowance or you’d like to talk through your financial situation in general then why not speak to one of our Personal Advisers. You can call us on 01332 223888 or complete the form below and we will get back to you as soon we can.









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