1. What Is The Savings Tax Allowance?

The Personal Savings Allowance (PSA) allows UK taxpayers to earn a certain amount of savings interest tax-free each year. The allowance varies based on your income tax band.

2. How Does The Calculator Work?

The calculator uses the formula:

Where:

• \( Interest \) — Total savings interest earned (GBP)
• \( PSA \) — Personal Savings Allowance: £1,000 (basic rate), £500 (higher rate), £0 (additional rate)
• \( TaxRate \) — Marginal tax rate: 20% (basic), 40% (higher), 45% (additional)

Explanation: Only savings interest above your PSA is taxable, at your marginal income tax rate.

3. Importance Of Tax Calculation

Details: Understanding your savings tax liability helps with financial planning and ensures you meet your tax obligations accurately.

4. Using The Calculator

Tips: Enter your total savings interest in GBP and select your income tax band. The calculator will determine your PSA and calculate any tax due.

5. Frequently Asked Questions (FAQ)

Q1: Who qualifies for the Personal Savings Allowance?
A: Most UK taxpayers qualify, but the amount depends on your income tax band. Non-taxpayers don't need to claim the allowance.

Q2: Is PSA in addition to the personal allowance?
A: Yes, the PSA is separate from your personal income tax allowance and applies specifically to savings interest.

Q3: What counts as savings interest?
A: Interest from bank accounts, building societies, credit unions, and government or corporate bonds.

Q4: Do I need to declare savings interest?
A: Banks usually report interest to HMRC. If you're a basic rate taxpayer with interest under £1,000, you typically don't need to do anything.

Q5: What if my income changes during the tax year?
A: Your PSA is based on your tax band at the end of the tax year. If your income changes, your allowance may be adjusted.