You can use your Personal Allowance against bank interest if you haven’t used it up on your other income, such as wages or pension. The Personal Allowance is the amount of income you don’t have to pay tax on and for 2017/18, is set at £11,500.
If you earn less than £16,500, you may also get up to £5,000 of interest tax-free. This is called the starting rate for savings. The more you earn above the personal allowance (from your pension for example), the less your starting rate for savings will be.
If you earn more than £16,500, you may also get up to £1,000 of interest tax-free if you’re a basic rate taxpayer. This is your Personal Savings Allowance. Higher rate taxpayers only have an allowance of £500. If you have interest above your Personal Savings Allowance, you’ll pay tax on any excess above your allowance at your usual rate of Income Tax.
By Jo Nockels
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