How much tax will I pay on my savings interest?

Working out how much interest you’ve earned across all your accounts and what allowances are available to you can be a challenge. The aim of this blog post is to help you understand the basics.

Interest is earned on the cash you deposit in a variety of financial products, such as savings accounts, bonds and cash ISAs. As you are probably aware, interest earned within ISAs is not taxable.

For everything else, these are the main allowances that can be used to mitigate your tax liability on your savings income:

• Personal Savings Allowance (PSA) – your personal savings allowance is based on your marginal rate. The allowance is £1,000 for basic rate and non-taxpayers, £500 for higher rate taxpayers, while additional rate taxpayers have no personal savings allowance at all
• Personal Allowance – the current personal allowance is £12,570. If your personal allowance has not been entirely used up by income from other sources, you may use it to offset your savings income
• After that, we have the Starting Rate Band (SRB) – the SRB applies to individuals with earned income below £17,570. The full SRB is £5,000 but only applies to non-taxpayers (ie if your earned income is below £12,570) and is then reduced by £1 for every £1 of earned income above the personal allowance, which is why you lose entitlement to the SRB once your earned income reaches £17,570

Of course, the amount of tax you’ll end up paying on savings income depends on a variety of factors and your personal circumstances. Working it out can be a complex and stressful task. That’s where we come in.

At Solomon’s, we’re not accountants but we can do these calculations for you (your Accountant should also be able to assist, if you have one).

Anybody with more than one source of income (where one of those sources is ‘savings interest’), needs to be aware of these bands, thresholds and allowances to ensure that you can double-check that you are paying the correct amount of tax over to HMRC when your circumstances are considered as a whole.

If you think you might be affected by these issues (and we aren’t already aware of them), please drop us a line and we will be happy to assist.