With your savings, you can always earn interest. Depending on how much there is in your account, the higher the amount the more interest you can get on it. And some saving you may be taxed on it but most people don’t get taxed. Your allowance for earning tax free interest are from the following:
- Starting rate for saving – depending on your other income
- Personal Saving Allowance – depending on your Income tax band
- Personal Allowance
Starting rate for savings
Any money that you save up to £5,000 then that is within the 0% tax rate band. This is your starting rate for savings. The more you earn from other income such as your pension or your normal wages then the less your starting rate for your saving will be. If any of your other income is over £16,500 then you are not eligible for the starting rate for savings. If any of your other income is £16,500 or less than your starting rate for saving is £5,000 maximum. If you start going over your Personal Allowance reduces your starting rate for saving by £1.
Personal Saving Allowance
depending on which Income tax rate you all in then you could get up to £1,000 interests tax free.
Income Tax band Tax-free Savings income
Basic rate £1,000
Higher rate £500
Additional rate £0
Personal Allowance
you can earn interest tax free with your personal allowance if you haven’t used it all on your pension, wages or other income.
If you go over your allowances then you will have to pay any tax on the interest at your usual rate of income. HMRC will change your tax code and you will pay your tax automatically if you are employed or have a pension.
Savings covered by your allowance
Your allowance applies to interest from:
- Unit trusts, investment trusts and open-ended investment companies
- Bank and building society accounts
- Peer-to-peer lending
- Saving and credit union accounts
Your allowance also applies to interest from:
- Life annuity payments
- Some life insurance contracts
- Government or company bonds
Saving already in tax free accounts like National Savings and Investment accounts and some Individual Savings Accounts don’t count towards your allowance.
