If you are a basic rate taxpayer, the first £1,000 of interest earned from all savings will be completely tax-free. This means that if your income in the 2016/17 tax year is under £42,700, you will be entitled to this allowance and will potentially save up to £200 in tax.
If you are a higher rate taxpayer, the first £500 of interest earned from all savings will be tax-free. This means that if your income in the 2016/17 tax year is between £42,701 and £150,000 a year, you will be entitled to the reduced allowance but again will potentially save up to £200 in tax.
Taxpayers who pay income tax at the additional rate (generally those whose taxable income exceeds £150,000) will not be entitled to the new savings allowance.
From 6 April 2016, banks and building societies will no longer take income tax from the interest earned on your savings income. If interest is received above the exempt amounts, tax will have to be accounted for and paid to HMRC. This is likely to mean an adjustment to your PAYE Tax Code.
If you need any advice from our Tax team, please contact us on the details below.