Starting Rate of Tax and Personal Savings Allowance for Savings Income Print

The Personal Savings Allowance (“PSA”) for 2018/19 and 2019/20 is £1,000 for basic rate taxpayers, and £500 for higher rate taxpayers. There is no relief for taxpayers who pay at the additional higher rate.

In addition, the Starting Rate of tax for savings income has been kept at 0% for 2018/19 and 2019/20. The Starting Rate limit remains at £5,000.

If the individual’s taxable non-savings income exceeds the starting rate limit, then the 0% Starting Rate band of tax is not available.

Example:

Jackie works part time and for 2018/19 her salary is £13,000. PAYE tax of £230 is deducted. She has non-dividend savings income of £5,800 for the year, paid gross.

Her tax liability is as follows:

£
Salary 13,000
Savings Income 5,800
Total Income 18,800
Less: Personal Allowance (11,850)
Taxable Income 6,950
Tax on Salary 1,150 @ 20% 230
Savings Income:
 5,000 – 1,500 = 3,850 @ 0% (Savings Starting Rate)
 1,000 @ 0% – Personal Savings Allowance
 5,800 – (3,850+1,000)= 950 @ 20% 190
Total tax payable 420
Less: tax deducted under PAYE (230)
Tax payable on savings income 190

If Jackie’s salary is £16,850 or more for 2018/19, she would still be entitled to the Personal Savings Allowance of £1,000 but would lose entitlement to any of the Savings Starting Rate band, and £4,800 of her savings income would be taxable at 20%.

Start a Conversation

How can we help you? Please complete all fields