Changes to Personal Savings Allowance
In April 2016 savers will see a significant change in the way the interest on their cash savings is taxed.
From 6th April 2016 banks and building societies will no longer deduct tax from interest added to savings accounts. Furthermore, basic‐rate tax payers will be allowed to earn £1,000 in interest tax‐free and higher – rate tax payers will be allowed to earn £500 in interest tax‐free.
This Personal Savings Allowance is in addition to the Tax‐Free Savings Allowance of up to £5,000 for low earners. The tax‐free savings allowance meansthat no tax is payable on savingsinterest for individuals earning less than £15,600 in the 2015/16 tax year (£16,000 in 2016/17).
The combination of these allowances means that no tax will be payable on up to £6,000 of savings interest for low earners (see table below).
In addition to these tax incentives savers will still be able to invest up to £15,240 in an ISA in 2016/17. All savings interest within an ISA is tax‐free.
It will be the responsibility of each individual to file a tax return if they believe that they owe tax on their savings.
Dividends are treated as non‐savings income. A new tax regime for dividends is also being introduced in 2016/17. Please refer to our article headed Dividend Tax 2016 for more information.
Savers and investors will need to keep their wits about them when deciding whether to invest in ISAs or not. Remember that ISA allowances may not be carried forward from year to year and legislation may well change in the future. If in doubt, ask us for advice.
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