Personal Savings Allowance
Changes to savings interest and taxation
From April 2016, a new Personal Savings Allowance has been introduced meaning most UK adults will be able to earn up to a certain amount in savings interest without paying tax. As part of this, banks and building societies will no longer automatically deduct tax on interest earned on savings.
How much will your Personal Savings Allowance be?
The Personal Savings Allowance depends on what rate of tax you pay:
- If you earn less than £17,000 you will not have to pay tax on your savings interest.
- If you are a basic-rate taxpayer (20%) and earn up to £43,000 a year you will be able to earn £1,000 a year interest without paying tax.
- If you are a higher-rate taxpayer (40%) and earn between £43,001 and £150,000 a year you will be able to earn £500 a year interest without paying tax.
- If you are an additional-rate (45%) taxpayer you will not receive a Personal Savings Allowance.
You will be required to pay tax on any interest earned above the amount of your Personal Savings Allowance.
Interest that relates to periods before 6 April 2016 but paid afterwards will not have tax deducted.
For more detailed information please visit the HMRC website.
How does this impact R85 and other schemes relating to tax exemption for HMRC?
From April 2016 banks and building societies will no longer deduct tax from savings interest. This means that any R85 forms or other tax exemption schemes you are currently part of will no longer be valid and you won’t need to complete an R85 form to be exempt from interest tax in the future.
If eligible, you can claim tax back on savings interest by filling in a R40 form and sending it to HMRC. These forms are available on Gov.uk.
What accounts does this impact?
The changes will impact all interest earned on savings and current accounts. Savings held in Offset accounts don’t earn interest so these will not be affected.
If you have a joint account, both account holders will receive a Personal Savings Allowance which will be used against each account holders share of the interest.
Only individuals receive a Personal Savings Allowance. If you are business, charity club or association you will already receive interest without tax taken off.
What about compensation payments?
Any interest received on compensatory payments will also not be affected and will still be subject to the deduction of tax by the Society. Customers may be able to claim the tax back by filling in form R40 and sending it to HMRC. The forms are available on Gov.uk.
Will my ISA earnings count towards my Personal Savings Allowance?
No – interest on ISA’s is already paid tax-free and will not count towards your Personal Savings Allowance.
Can I still request Tax Statements from Leeds Building Society?
Yes, you can request tax statements for tax years up to and including 2015/2016 from Leeds Building Society. Statements of interest paid on future accounts will be available on request.
How do I find out how much interest I’ve earned?
If you would like to know how much interest you have earned on your savings you can request a Statement of Interest from Leeds Building Society. Please call our Savings contact centre team on 03450 50 50 75.
Does this affect any Leeds Building Society savings accounts I have in Ireland or Gibraltar?
No – Interest on savings held in Gibraltar or Ireland is already paid without the deduction of tax. Although this does not mean that the interest you receive is exempt from tax - it is your responsibility to advise the appropriate tax authorities of any interest received.
What do I need to do if I think I need to pay tax on my interest?
If you have any savings income over your Personal Savings Allowance you will have to pay tax on this. HMRC will normally collect the tax by changing your tax code.
If you think you need to pay tax on your savings interest or are unsure how the changes might impact you then you will need to seek independent advice or visit HMRC’s website for further information.
If you currently complete a self-assessment tax return you should continue to do so and include any income from savings on your return.