The Personal Savings Allowance is here!

07th April 2016

Although it’s been a while since we first heard about this new allowance, it seems many people are still in the dark about what it means and how it will affect them.

If you are a regular reader of our newsletters, then you are likely to be better informed than many - including some of the banks and building societies!

But for those who aren't up to speed, please download our free Personal Savings Allowance factsheet for the key points.

However, there are some additional points that you should bear in mind;

Saving just became less taxing. Or did it?

The biggest change to your savings accounts will be that the interest earned from 6th April 2016 will be paid without the deduction of basic rate tax. However, if your taxable savings interest means that you will breach your Personal Savings Allowance, then you need to be vigilant to make sure that you don’t pay more tax than you need to.

The problem that has arisen is that for those on the PAYE system, any tax due will be taken via an amendment of your tax code. But this is being estimated by HMRC, based on old information supplied by the banks and building societies – the actual interest you are expecting to earn over the coming year may be very different.

So, TIP No 1 is to check your tax code and inform HMRC if you don’t think it is right.

Another issue to be aware of is that if the tax is withdrawn via the PAYE scheme, you are likely to be paying tax on interest that you have yet to earn, as you many not actually receive the interest from your savings until later in the year; if your tax code has been amended to reflect what you may need to pay, your income will change with immediate effect.

TIP No 2 – be aware of how the changes will affect your income and plan for this.

We've had lots of you contacting us with tales of bizarre tax code calculations and conversations with HMRC. If you need any help, whilst we can’t give tax advice, we can help you with understanding the rules. So call one of our advisers on 0800 321 3581.

For those who will not breach the Personal Savings Allowance, this is all good news. For those who will, there could be some short term pain before you see the eventual gain!

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