What is the Personal Savings Allowance?
The Personal Savings Allowance allows basic rate taxpayers to earn up to £1,000 of savings interest tax-free each year, and higher rate taxpayers up to £500. Additional rate taxpayers have no allowance. With savings rates now above 4-5%, many people are exceeding their PSA for the first time.
What is the starting rate for savings?
The starting rate for savings provides an additional tax-free band of up to £5,000 for people with low non-savings income below £17,570. For every £1 of non-savings income above £12,570, the £5,000 starting rate reduces by £1. This primarily benefits retirees and people with modest employment income who have significant savings.
Do ISA savings count toward the PSA?
No. Interest earned inside a Cash ISA or Stocks and Shares ISA is completely tax-free and does not count toward the Personal Savings Allowance. Holding savings in an ISA is particularly valuable for higher rate taxpayers whose PSA is only £500.