Benefits of the new Personal Savings Allowance

A new tax exemption on savings income comes into force on 6th April and will bring a range of benefits with it to many taxpayers.

The Telegraph reported that The Personal Savings Allowance (PSA) will be one of the most significant changes to personal finances in the year ahead as it gives every basic-rate taxpayer £1,000 of savings income free of tax.

ISA

The main benefits will go to basic-rate taxpayers as higher-rate taxpayers will receive a £500 allowance and additional-rate taxpayers on the top 45% rate won’t receive an allowance at all.

However, confusion may arise because ISAs have been the traditional tax-free savings approach for many for a number of years. Now, current accounts, fixed rate bonds and other regular savings will be covered by the new PSA.

Long term

ISAs still offer a good way to make long-term tax-free savings that can build up into a substantial pot over time. They also give flexibility to invest in a variety of different ways.

Many savers may choose to go up to the PSA limit in a high interest current account and then put funds over and above that into ISAs.

Increases in income and a change of tax brackets, having an offset mortgage and becoming self-employed might all add complications to what should be a relatively simple picture.

HMRC’s plans for “personal tax accounts” should mean that banks and building societies will provide interest information directly to the Treasury, but the full implications are yet to be revealed.