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Unlock your financial potential with our simple personal saving allowance guide.
Set by the government, your personal savings allowance is the amount of interest you can earn on your savings before tax applies.
It depends on your annual income, which can include earnings from work, benefits and pensions, investments and savings.
Higher-rate taxpayers may have a smaller allowance, or no personal savings allowance at all, meaning tax will apply to more of their savings income.
The amount of interest you can earn on your savings will depend on your tax bracket:
If your income is below £17,570, you may benefit from the starting rate for savings. For the current tax year, that’s up to £5,000 in tax-free interest.
If you earn between £12,571 and £17,570, you may qualify for both the starting rate for savings, in addition to your personal savings allowance.
Your PSA covers a range of saving types, including:
Whether or not you benefit from a PSA, you may be interested in saving products which help you to earn tax-free interest as standard. Separate to your PSA, is your ISA allowance – in the current tax year, this allows you to save and earn tax-free interest on up to £20,000.
Any interest you earn over and above your personal savings allowance must be declared for tax purposes.
Banks and other financial institutions report all interest to HM Revenue & Customs (HMRC) at the end of each tax year. If you’re employed, or you receive a pension, HMRC may change your tax code. This means if you need to pay tax on interest you’ve received, this will happen automatically.
If you complete a HMRC Self-Assessment tax return, you should report all earnings, including any interest earned on savings, before working out and paying any tax due. Any amount of tax due will depend on your other sources of income, tax allowances and so on.
If you think you’ve overpaid, you can reclaim tax on your self-assessment, or by completing an R40 form – available from the gov.uk website.
Interest earned from money held in ISAs are an exception. These are tax-free.
Whatever you’re saving for, a Lloyds ISA or savings account could help.