18 March 2016
Changes to the Personal Savings Allowance
The Government promises to make saving even more rewarding from 6 April this year, with changes to the Personal Savings Allowance introducing more tax-free savings than ever before.
Described as the biggest shake-up to savings for a generation, the changes are set to help new and existing savers benefit in the long run. Here, Principality Building Society’s Savings Product Manager Kate Murray breaks down the changes so you waste no time in making the most of the benefits on offer.
Come next month, savers nationwide are set to benefit from a Personal Savings Allowance overhaul which will allow many of us to get much more in return for our hard-earned savings. Along with more tax-free savings, tweaks to ISAs are also set to benefit existing ISA holders and those looking to start saving with one.
With both a Personal Savings Allowance and ISA used by many of us as a means of setting aside our hard-earned pounds – be it for a house deposit, home improvements or university fund – it’s important to get to grips with the changes, and the benefits, sooner rather than later so that you can save for what you want.
Changes to the Personal Saving Allowance
The new Personal Savings Allowance means that, from 6 April 2016, you can earn up to £1,000 interest a year on your savings without paying a penny of tax. Meaning that 95 per cent of people won’t pay tax on savings*. To put it into perspective how significant these changes are, currently for every £100 interest earned, basic-rate taxpayers lose £20 in tax.
Does everybody get a Personal Savings Allowance?
If you’re a basic-rate (20%) taxpayer, you’ll be able to qualify for the Personal Savings Allowance and earn £1000 interest with no tax. If you’re a higher-rate (40%) taxpayer, you can earn £500 interest without being taxed. Additional-rate taxpayers (45%) won’t get a Personal Savings Allowance.
How do I get a Personal Savings Account?
You don’t need to lift a finger. If you’re a basic-rate taxpayer, from 6 April 2016 all banks and building societies will stop taking tax from the interest paid on your non-ISA savings and current accounts.
What if I have multiple savings accounts in different places?
Again, there’s nothing you’ll need to do here. All banks and building societies will pass on all your relevant information to HMRC, so you’ll automatically get your Personal Savings Allowance across all of your accounts.
Will this affect my ISA interest?
No, you can still save up to £15,240 in ISAs. All ISA interest is tax-free and doesn’t count towards your Personal Savings Allowance.
So what about ISAs…
Coupled with the new Personal Saving Allowance, the high interest and flexibility offered by ISAs will now give savers the opportunity to put even more aside for their long-term goals.
This means that come next month, ISAs should certainly become an even more attractive option for those looking to save their hard-earned pounds, especially as they are now more flexible (see below)
What are the changes for ISAs?
6 April this year will see variable ISAs become ‘flexible ISAs’, allowing you to take money out and replace it before the end of the tax year without it affecting your annual ISA allowance. The ISA allowance for the 2016/2017 tax year is £15,240.
Your ISA allowance
It’s important to note that if you chose to take money out of your flexible ISA, any more you pay in at a later date will come off your replacement ISA allowance – not your current year’s annual allowance.
Each 6 April, your replacement allowance will be reset to zero, and your current year’s ISA annual allowance is the amount set by the Government.
So while savers will need to brush up on the changes and what they mean for their various accounts, there’s no doubt the new measures will bring plenty of benefits in the long run.
What’s more, a more flexible system will leave you with the peace of mind that your money is accessible at any point without affecting your allowance – perfect for those either topping up regularly or even thinking of opening their very first ISA. Whatever you’re saving for, any changes that help you reach your goal more quickly really are a no brainer.
For more information download our handy guide.
*By clicking on the links you will leave the Principality website - Principality is not responsible for the content of external websites.