How familiar are you with the Personal Savings Allowance?
The thresholds for Income Tax are relatively well known by taxpayers in the UK, or the most relevant ones to them are, but the Personal Savings Allowance is poorly understood.
As changes to ISAs will cause a new approach to saving, it is important to discover whether you are at risk of the hidden savings tax trap.
Do you pay tax on savings?
The savings themselves are not subject to tax, but interest earned on them could be.
Your Personal Savings Allowance determines how much interest you can generate before tax is applied.
The Personal Savings Allowance is set by your rate of Income Tax, so knowing what your threshold is can make you more aware of tax exposure.
The thresholds are:
By contrast, interest earned through ISAs is generally tax-free, making them much more tax-efficient.
Utilising as much of the £20,000 saving limit for an ISA as early in the tax year as possible is the best approach, as this gives you more time to generate tax-free interest.
How do I handle savings tax?
The tax applied to interest is often not noticed until HMRC send a surprise tax bill to you.
For those who are paid and taxed through PAYE, having to engage with tax at all might be an unfamiliar experience.
Those who file Self Assessment tax returns should be more equipped to handle it, as declaring interest is a standard part of this process.
As saving strategies change, seeking professional financial advice is incredibly important.
If you are under 65, the savings limit for Cash ISAs will drop to £12,000 in 2027.
While you can put the remaining £8,000 of your limit into a Stocks and Shares ISA, many will likely consider new ways of saving cash.
We do not want people assuming all savings accounts mirror ISAs only to end up with an unexpected tax bill.
Speak to our team for tailored support in finding a savings strategy that works for you.
