How to enjoy savings income tax-freecreative77
As every penny counts more than ever now, there are various ways you can enjoy income, or basically the interest earned, on your savings without paying any tax.
Obviously this depends on the nature of the savings and any other earnings and taxes paid, below are a few ways you can take advantage of this.
Basic and higher rate taxpayers are entitled to a savings allowance. The allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers.
The allowance is available in addition to the personal allowance and the dividend allowance.
However, taxpayers who pay tax at the additional rate (which applies to taxable income in excess of £150,000) do not benefit from a personal savings allowance and must pay tax on any savings income unless it is otherwise exempt.
There is no need for a separate savings allowance for savers who total income is less than their personal allowance, the personal allowance will shelter any savings income.
Savings starting rate
Savings income which falls within the savings starting rate band is taxed at the savings starting rate of 0%.
Depending on the individual’s personal circumstances, they could enjoy up to £5,000 of savings income tax-free.
The savings starting rate band is set at £5,000, but is reduced by any taxable non-savings income.
This is other taxable income over and above the personal allowance, but excludes any dividends which are treated as the top slice of income.
Consequently, the full £5,000 savings starting rate band is available where other taxable income is less than the individual’s personal allowance. The standard personal allowance is £12,570 for 2022/23. The savings starting rate is eroded once taxable income in excess of the personal allowance reaches £5,000.
The savings starting rate is applied before the personal savings allowance.
And the most straight forward of all – if savings are held within a tax-free account such as an Individual Savings Account, the associated savings income is tax-free!