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Tax on savings interest

Tuesday, April 9th, 2024

If you have taxable income of less than £17,570 in 2024-25 you will have no tax to pay on interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,570 personal allowance. In addition, there is a Personal Savings Allowance (PSA). This allowance ensures that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free (effectively allowing qualifying basic-rate taxpayers to receive up to £18,570 in tax-free interest per year). For higher-rate taxpayers the tax-free personal savings allowance is £500. Taxpayers paying the additional rate of tax on taxable income over £125,140 cannot benefit from the PSA.

It is important to note that if your total non-savings income exceeds £17,570 then the starting rate limit for savings is unavailable. There is a tapered relief available if your non-savings income is between £12,570 and £17,570 whereby every £1 of non-savings income above a taxpayer’s personal allowance reduces their starting rate for savings by £1.

Interest from savings products such as ISA’s and premium bond wins do not count towards the limit. Taxpayers with tax-free accounts and higher savings can still continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from bank account interest as a matter of course. Taxpayers who need to pay tax on savings income are required to declare this as part of their annual self-assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years from the end of the current tax year. This means that claims can still be made for overpaid interest dating back as far as the 2020-21 tax year. The deadline for making claims for the 2020-21 tax year is 5 April 2025.

Not so trivial benefits

Friday, July 1st, 2022

The trivial benefits exemption allows you to provide benefits to employees without your employee suffering a tax charge on the benefit. Likewise, there is no Class 1A National Insurance for you, the employer, to pay.

To count as ‘trivial’ for the purposes of the exemption, the benefit must meet all of the following conditions:

  • the cost of providing the benefit is £50 or less.
  • the benefit is not cash or a cash voucher.
  • your employee is not contractually entitled to the benefit.
  • the benefit is not provided in recognition of particular services.

Unless your company is a close company (generally a small company) and trivial benefits are provided to a director or other office holder, there is no limit on the number of trivial benefits that you can give to a particular employee in the tax year.

However, the cumulative provision of trivial benefits to directors or other office holders of close companies is capped at £300 for each tax year.

If you provide the benefit to a number of your employees and it is impracticable to work out the actual cost of each individual benefit provided to each individual employee, you can work out the average cost instead. As long as this does not exceed £50 the cost condition will be met.