Income Tax – £5,000 savings zero rate band

Understanding the £5,000 Savings Zero Rate Band for 2023-24

For the tax year 2023-24, if you earn less than £17,570, you’re entitled to a 0% tax rate on interest earned up to £5,000, thanks to the savings zero rate band. This band is in addition to the standard personal allowance of £12,570, allowing taxpayers to maximise their income from savings without the burden of tax.

How Non-Savings Income Affects Your Savings Tax Rate

It’s critical to understand that exceeding a total non-savings income of £17,570 disqualifies you from the zero rate band. However, a tapering relief is in place for incomes between £12,570 and £17,570, adjusting your eligible savings rate band accordingly.

Personal Savings Allowance: A Tax-Saving Boon for Savers

The Personal Savings Allowance (PSA) is another advantage for savers, granting basic-rate taxpayers £1,000 of tax-free interest, and higher-rate taxpayers a £500 allowance. However, additional-rate taxpayers, earning over £125,140, are exempt from the PSA benefits.

Exclusions from the Savings Limit: ISAs and Premium Bonds

Interest from ISAs and premium bond wins are exempt from these limits, providing further avenues for savers to earn interest tax-free.

The End of Automatic Tax Deduction on Bank Interest

Gone are the days when banks and building societies would deduct tax from interest automatically. Now, it is the taxpayers’ responsibility to declare any taxable savings income via Self-Assessment tax returns.

Reclaiming Overpaid Tax on Savings Interest

If you’ve overpaid tax on savings interest, you’re eligible to claim a refund for up to four years. This means claims for the tax year 2019-20 can still be made until 5 April 2024.

Incorporating these tips and being aware of the available allowances and reliefs can significantly benefit savers, ensuring they don’t pay more tax than necessary on their savings income. Always stay informed and consider seeking professional tax advice to optimise your savings strategy.