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

The Personal Savings Allowance (“PSA”) for 2020/21 and 2021/22 remains at £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 2020/21 and 2021/22. 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 2021/22 her salary is £15,000. PAYE tax of £486 is deducted. She has non-dividend savings income of £5,800 for the year, paid gross. Her tax liability is as follows:

£
Salary 15,000
Savings Income 5,800
Total Income 20,800
Less: Personal Allowance (12,570)
Taxable Income 8,230
Tax on Salary 2,430 @ 20% 486
Savings Income:
 5,000 – 2,430 = 2,570 @ 0% (Savings Starting Rate)
 1,000 @ 0% – Personal Savings Allowance
 5,800 – (2,570+1,000)= 2,230 @ 20% 446
Total tax payable 932
Less: tax deducted under PAYE 486
Tax payable on savings income 446

If Jackie’s salary is £17,570 or more for 2021/22, 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%.

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