From 6 April 2016 the Personal Savings Allowance (PSA) launches which means every basic rate taxpayer (people who pay 20% tax on income) can earn £1,000 interest per tax year without paying tax on it. Higher rate taxpayers (people who pay 40% tax) get a £500 Personal Savings Allowance whilst additional rate taxpayers (paying 45% tax) don’t get any allowance. The Personal Savings Allowance is as well as an ISA allowance.
1. A customer who is a basic rate taxpayer has two non ISA savings accounts with two different banks
2. They earn £600 interest on each account in a tax year- a total of £1,200 interest
3. They will have to pay tax on the £200 that is above their allowance. (£1,200 interest minus £1,000 PSA = £200)
4. This will either be taxed through their tax code or their declaration to HMRC