There are significant changes to the income tax rules from 6 April 2016 which affect the taxation of savings income.
From 6 April 2016, if you are a basic taxpayer you may be able to receive up to £1,000 in savings income tax free. Higher rate taxpayers will be able to receive up to £500.
Savings income includes the following:
• interest from bank and building societies accounts
• interest from credit union or National Savings and Investment accounts
• income from government or company bonds
• interest distributions from authorised unit trusts
• most types of purchased life annuity payments
As a result of this from 6 April 2016 interest will be paid gross rather than net which is the current position for
most interest paid to individuals. Net payments are received after deduction of the basic rate of tax of 20%. Interest from ISAs is not included in your Savings Allowance (SA) because it is already tax free.
No action is required to claim the allowance. If the amount of savings income you receive is higher than the allowance, banks and building societies will provide details to HMRC and they will amend your tax code to collect any tax due. If you complete a Self Assessment tax return you should carry on doing this as normal.
If you have any queries on the changes to income tax please do get in touch.