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Personal Savings Allowance: Overview and Q&As

Overview

From 6 April 2016, most UK taxpayers will have a new Personal Savings Allowance (PSA). This means that up to £1,000 of income from savings (eg any credit interest earned) will be tax free for basic rate taxpayers, and up to £500 of savings income will be tax free for higher rate taxpayers. Additional rate taxpayers will not be entitled to any PSA.

We are currently required to take basic rate tax from your savings interest. From 6 April, we will stop doing this.

There is no action for you to take. If you have savings income below your new Personal Savings Allowance you will have no tax to pay.

If your savings interest exceeds your Personal Savings Allowance, where possible HMRC will collect any tax you have to pay automatically through a change to your tax code - based on information provided by banks and building societies.

If you currently complete a self assessment tax return you should continue to do so.

For further information about these changes, go to the GOV.UK website and search for Personal Savings Allowance. Full details will be added to the GOV.UK website in April when the new rules come into effect.

Q&As

The following questions and answers should help if you receive credit interest on your accounts.

What is savings income?

Savings income includes:

  • interest from banks, building societies and other account providers (such as credit unions and NS&I)
  • interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • income from government or company bonds
  • some types of purchased life annuity payments and gains from certain contracts for life insurance

Does income from my individual savings account (ISA) count towards my Personal Savings Allowance?

No, income from ISAs does not count towards your Personal Savings Allowance.

How will the way I am paid credit interest on my accounts change?

Accounts paying annual credit interest (such as Monthly Saver or Fixed Rate Savings), which mature up to and including 5 April 2016, will receive net credit interest at maturity, unless you have registered to receive gross interest by completing either a Form R85 or Form R105. Customers with accounts paying annual credit interest, which will mature on or after 6 April 2016, will automatically receive gross credit interest.

Accounts paying monthly credit interest will receive net credit interest on payments made up to and including 5 April 2016, unless you have registered to receive gross credit interest by completing either a Form R85 or Form R105. Credit interest payments made on or after 6 April 2016 will automatically be paid gross.

Will the changes affect savings income I received before 6 April 2016?

No, changes only apply to savings income paid after 6 April 2016.

Do I need to tell M&S Bank about other savings income or my tax rate?

No, you do not need to give us any information about your tax rate or other savings income.

I registered my account to receive interest without tax taken off, what do I need to do now?

You do not need to do anything because from 6 April 2016 all credit interest will be paid without tax taken off.

What about interest paid on PPI and other compensation payments?

Banks and building societies will still be required to take tax from any compensation interest paid. You may be able to claim the tax back by filling in Form R40 (or Form R43 if living overseas) and sending it to HMRC. These forms are available online at GOV.UK.

How do I claim back tax paid on other savings income?

From 6 April 2016, banks and building societies will pay credit interest with no tax taken off. However, you may still receive other types of savings income with tax taken off (for example: interest distributions, but not dividend distributions, from authorised unit trusts, open-ended investment companies and investment trusts). You may be able to claim this tax back by filling in Form R40 (or Form R43 if living overseas) and sending it to HMRC. These forms are available online at GOV.UK.

Will the Personal Savings Allowance affect the new £5,000 Dividend Allowance?

No, they are two separate allowances.

My accounts relate to a business /a charity /a club /an association /I am a trustee /administering an estate – what will this mean for them/me?

Only individuals get a Personal Savings Allowance.

If your accounts relate to a business, charity, club or association, they will automatically receive interest without tax taken off from 6 April 2016.

If you are a trustee or are administering an estate, we will no longer deduct tax from the credit interest we pay, so any tax due will have to be paid through the trust/estate tax return, where appropriate.

For further information, please see the HMRC website, and/or seek further advice from your accountant or tax advisor.