Saving money is all about improving your financial security, having peace of mind, planning your future. So, when you put your cash into a savings account, you want to know it’s growing in a tax-efficient way.
So, if you're wondering, "do I have to pay tax on my savings?" Here are some of the most common questions savers have about being taxed on their cash.
Any cash you have in a savings account won’t be taxed, but you might have to pay tax on the savings interest you earn.
ISAs (Individual Savings Accounts), regular savings accounts and fixed-rate bonds can all be subject to taxation. The specific tax rules can vary so it's important to be aware that not all savings are taxed equally.
In April 2016 the Personal Savings Allowance (PSA) was introduced to benefit existing savers and encourage new savers. Prior to this date, any savings income was potentially liable to income tax.
The PSA now means there’s a tax-free amount your savings can earn in interest across all of your bank accounts (except ISAs) each year without paying tax. Your tax-free allowance is based on your total annual income, which includes your employment income but also other income such as your pensions, certain benefits and reliefs or exemptions.
As the PSA is linked to your income, it will depend on what taxpayer bracket you are in:
Find out more about the Personal Savings Allowance on the HMRC website.
Your PSA is not the only way to save tax-free. So, if you’re an additional rate tax-payer, or have utilised your PSA and are still wondering “do I have to pay tax on my savings?” there are some great tax-advantaged savings accounts available. ISAs for pensions are designed to encourage saving for retirement and other financial goals.
There are several reasons why a cash ISA may remain a preferable choice for your savings over a standard savings account, even with the introduction of the Personal Savings Allowance (PSA):
These advantages can make a cash ISA a worthwhile and advantageous option for your saving needs, and remember, interest earned from ISAs don’t count towards your PSA as it is already tax-free.
If you’re looking to open a savings account, you can find Hodge online rates for ISAs here
This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information at unbiased.co.uk.