Time is running out for UK savers to secure a valuable tax break on their savings interest. HM Revenue & Customs (HMRC) is actively prompting individuals to claim a new £1,000 tax-free allowance before the current tax year concludes on April 5th.
This initiative, known as the Personal Savings Allowance (PSA), permits basic-rate taxpayers to earn up to £1,000 in savings interest completely free of Income Tax. For higher-rate taxpayers, the allowance is a still-generous £500.
Why This Allowance Matters Now
With interest rates on savings accounts finally rising after years of historic lows, many more people are now earning enough interest to potentially cross the tax threshold. The PSA acts as a crucial shield, ensuring your hard-earned savings growth isn't diminished by an unexpected tax bill.
HMRC uses a system called 'R85' to allow banks and building societies to pay your interest without deducting tax. If you haven't already filled out this form, you could be missing out.
How to Claim Your Tax-Free Savings
Claiming your allowance is a straightforward process:
- Check your eligibility: Ensure your total annual income, including interest, falls within the basic or higher rate tax bands.
- Contact your bank: Ask your savings provider for an R85 form to register for tax-free interest.
- Submit before the deadline: Forms must be processed by your bank before April 5th to count for this tax year.
If you've already paid tax on your savings interest this year, you can reclaim it by filling out an R40 form from HMRC.
Beyond the PSA: Don't Forget Your ISA
While the PSA is excellent news, financial experts strongly recommend also utilising your Individual Savings Account (ISA) allowance. Any interest earned within an ISA is permanently shielded from the taxman, regardless of amount. You can save up to £20,000 across all your ISAs in the 2023/24 tax year.
For those with significant savings, using a combination of the PSA and an ISA is the most effective strategy to maximise your returns and minimise your tax liability. Act now to ensure your savings work harder for you.
