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Tax on savings interest

14 March 2024

The UK’s 2023-24 tax relief measures include the Register of Overseas Entities and Personal Savings Allowance. These initiatives enhance transparency, encourage savings, and provide opportunities for taxpayers to rectify over payments, demonstrating the government’s commitment to fairness in the tax system.

Taxable Income and Savings Interest

In 2023-24, if your taxable income is under £17,570, you won’t pay tax on interest. This figure includes the £5,000 starting rate limit for savings and the £12,570 personal allowance. This is a significant relief for taxpayers, particularly those with lower incomes. It’s a strategic move by the UK government to encourage savings and investments among its citizens.

However, it’s important to understand that if your non-savings income exceeds £17,570, you can’t use the starting rate limit for savings. This is a crucial point to remember, as it can impact your tax planning and financial management strategies.

If your non-savings income is between £12,570 and £17,570, you can get tapered relief. For every £1 of non-savings income above your personal allowance, your starting rate for savings reduces by £1. This is a progressive measure designed to ensure fairness in the tax system.

Personal Savings Allowance (PSA)

The Personal Savings Allowance (PSA) is another beneficial feature. It can help many savers, especially those in the basic and higher tax brackets. It makes the first £1,000 interest on savings income tax-free for basic-rate taxpayers. For higher-rate taxpayers, it’s £500. But, taxpayers with taxable income over £125,140 can’t use the PSA. This is to ensure that the benefits of the PSA are targeted at those who need it most.

Interest from ISA’s and premium bond wins doesn’t count towards the limit. This is a significant advantage for taxpayers with tax-free accounts and higher savings. They can still use the PSA limits, thereby maximizing their savings potential.

Tax Deduction and Repayment

Banks and building societies don’t automatically deduct tax from bank account interest anymore. This is a significant change from previous practices. If taxpayers need to pay tax on savings income, they must declare it on their annual self-assessment tax return. This promotes transparency and accountability in the tax system.

If taxpayers have overpaid tax on savings interest, they can claim a tax repayment. They can backdate claims for up to four years from the end of the current tax year. So, they can make claims for overpaid interest dating back to the 2019-20 tax year. The deadline for making claims for the 2019-20 tax year is 5 April 2024. This provision ensures that taxpayers have ample opportunity to rectify any over-payments and get their hard-earned money back. It’s a testament to the UK government’s commitment to fairness and justice in the tax system.

Source: HM Revenue & Customs Tue, 12 Mar 2024 00:00:00 +0100

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