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

From 6 April 2016 a new Personal Savings Allowance (“PSA”) was introduced. The annual allowance for 2017/18, and 2018/19 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 2017/18, and 2018/19.

If the individual’s taxable non-savings income for 2017/18 exceeds the starting rate limit, then the 0% starting rate band of tax is not available.

Example:

Jackie works part time and for 2017/18 her salary is £13,000. PAYE tax of £300 is deducted. She has non-dividend savings income of £5,800 for the year, paid gross.

£
Salary 13,000
Savings Income 5,800
Total Income 18,800
Less: Personal Allowance (11,500)
Taxable Income 7,300
Tax on Salary 1,500 @ 20% 300
Savings Income:
 5,000 – 1,500 = 3,500 @ 0% (Savings Starting Rate)
 1,000 @ 0% – Personal Savings Allowance
 5,800 – (3,500+1,000)= 1,300 @ 20% 260
Total tax payable 560
Less: tax deducted under PAYE (300)
Tax payable on savings income 260

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