The Government is giving you money… well, almost!
As of now, you don’t have to pay tax on any interest you get on savings up to £1,000.
That may sound generous, but actually you need to have at least £100,000 in savings to make anything close to £1,000 in interest right now but, hey, it’s better than nothing!
Other changes this month (and there are a lot of them) include the new State Pension coming in, the living wage being introduced and a higher personal tax allowance. You can find out about those…and more…in this article about getting more money with the flat rate state pension and how to be 30% richer in retirement without saving any more here.
Here are the details for the Personal Savings Allowance:
CHANGES TO THE PERSONAL SAVINGS ALLOWANCE
The new Personal Savings Allowance means that you can now earn up to £1,000 interest a year on your savings – like those in your bank account or building society account – without paying a penny of tax.
It used to be that for every £100 interest earned, basic-rate you would lose £20 in tax. Not now though. You can keep it all!
DOES EVERYBODY GET A PERSONAL SAVINGS ALLOWANCE?
If you’re a basic-rate taxpayer (i.e. you pay 20% tax on your earnings), you’ll be able to qualify for the Personal Savings Allowance and earn £1,000 interest with no tax.
If you’re a higher-rate taxpayer paying 40%, you can earn £500 interest without being taxed.
If you make a lot of money each year and you are an additional-rate taxpayer (45%) you won’t get a Personal Savings Allowance.
HOW DO I GET A PERSONAL SAVINGS ACCOUNT?
You don’t need to do anything to get it. It’s automatic. If you’re a basic-rate taxpayer, all banks and building societies will stop taking tax from the interest you get on your non-ISA savings and current accounts.
All banks and building societies will pass on all your relevant information to HMRC, so you’ll automatically get your Personal Savings Allowance across all of your accounts.
WHAT ABOUT MY CASH ISA? IS THAT AFFECTED?
No, you can still save up to £20,000 in ISAs, although there’s rather less reason to bother with Cash ISAs now. The ISA limit will go up next year as well. All ISA interest is tax-free (it always has been) and it doesn’t count towards your Personal Savings Allowance.
Remember, though, that for long-term investing, stocks and shares do much better than savings accounts so really you would be better off long-term, putting your money into a stocks and shares ISA, not a cash ISA. Now that you can keep the first £1,000 of interest that you make, there’s even more reason to put the rest into shares.
Find out how you could be making a LOT more money for your future in a stocks and shares ISA here.
ARE ISAS CHANGING NOW?
ISAs are now ‘flexible ISAs’, allowing you to take money out and replace it before the end of the tax year without it affecting your annual ISA allowance.
It used to be that if you took money out of an ISA and then put it back again within the tax year (April 6th to April 5th) it would count as part of your ISA allowance when you put it back in.
In other words, if you took out £10,000 and then put it back again a few weeks later, you would only be allowed to put in another £5,000 until the end of the tax year. The £10,000 you put back in would be counted as part of the £15,000 (or whatever the ISA limit was) for that tax year.
Now, though, so long as you put the money back within in the tax year, it’s not counted as ‘new money’. This makes them a lot more flexible and encourages us to keep saving!
The ISA allowance for the 2017/2018 tax year is £20,000 so you can put that money in, take it out and put it back in again all within the tax year without penalty.
Each 6 April, your replacement allowance will be reset to zero, and your current year’s ISA annual allowance is the amount set by the Government.