Savings Income Taxation

Savings Income taxation

From 6th April 2016 there is a new personal savings income taxation allowance of up to £5,000 in addition to the tax free personal allowance of £11,000. In addition, the first £1,000 of savings interest income is exempt from tax. This means that a person can have up to £17,000 of income before paying any UK tax. Non savings income such as earnings and pension is taxed first followed by savings income.

Savings Income taxation Example

State Pension £8,000
Other earnings £3,000
Savings Interest Income £6,000
Total £17,000
Less Tax Free Personal Allowance £11,000
Less Personal Savings Allowance £5,000
Taxable income £1,000
Tax rate nil% on first £1,000 of taxable savings income
Tax due £0

In addition, the first £5,000 of taxable dividend income is exempt from tax so it would be possible to have up to £22,000 of income in a mix of non-savings income and savings interest and dividend income. Savings income and dividends within an ISA wrapper are, however, exempt from tax.

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