The taxman has published a Policy Paper on the new Personal Savings Allowance (PSA) for individuals, which will mean that from tomorrow (April 6) basic rate taxpayers can receive up to £1,000 of savings and higher rate taxpayers up to £500 of savings income without any tax being due. In addition, as of tomorrow, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers.
It is estimated that around 18 million savers will benefit from an annual tax reduction of, on average, £25 a year on their savings income and that around 95 per cent of taxpayers will not pay any tax at all on it.
However, around one million individuals are expected to still have tax to pay on their savings income, most of whom will be additional rate taxpayers or individuals with higher than average savings.
The Policy Paper also outlines that income from an individual savings account (ISA) and income that qualifies for the 0 per cent starting rate for savings at section 12 of ITA, will not use up any part of an individual’s savings allowance.
However, income that is within an individual’s savings allowance will still count towards their basic or higher rate limits and may therefore affect the level of savings allowance they are entitled to, as well as the rate of tax that is due on any savings income they receive in excess of this allowance.
Because deposit-takers, building societies and NS&I will no longer be required to deduct sums representing income tax from account interest they pay to customers, people who are unlikely to have tax to pay on their bank or building society interest will no longer have to register with their account provider to have this interest paid without deduction.