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UK Savings Interest Tax Formula:
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The UK Savings Interest Tax is calculated on interest earned from savings accounts above your Personal Savings Allowance (PSA). The tax amount depends on your marginal income tax rate and the PSA applicable to your tax band.
The calculator uses the UK savings tax formula:
Where:
Explanation: The calculation determines taxable interest (interest above PSA) and applies the appropriate tax rate based on your income tax band.
Details: Accurate tax calculation on savings interest is essential for proper tax reporting, avoiding underpayment penalties, and financial planning. The PSA allows most basic rate taxpayers to earn some savings interest tax-free.
Tips: Enter your total savings interest in GBP and select your marginal tax rate. The calculator will automatically determine your PSA and calculate the tax due on any interest above this allowance.
Q1: What is the Personal Savings Allowance (PSA)?
A: The PSA is the amount of savings interest you can earn each tax year without paying tax. It's £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers.
Q2: Do I need to declare savings interest?
A: If your total savings interest exceeds your PSA, you may need to declare it on a self-assessment tax return or contact HMRC if you don't normally complete one.
Q3: Are all savings accounts taxable?
A: Most savings accounts are taxable, but ISAs (Individual Savings Accounts) are tax-free, meaning you don't pay tax on any interest earned within an ISA.
Q4: What if I have multiple savings accounts?
A: You must add together interest from all taxable savings accounts to determine if your total exceeds your PSA.
Q5: How often is tax on savings interest paid?
A: For most people, tax on savings interest is collected through self-assessment or through your tax code if you're employed or receive a pension.