Personal Savings Allowance

Tax-free savings changed from 6th April 2016, with the introduction of the new Personal Savings Allowance. This is the amount you are able to save tax free and will depend on your total taxable income.

What is a Cash ISA?

Just like a savings account, a Cash ISA (Individual Savings Account) is a safe, secure way to store your money. The only difference is that any interest you earn on your savings is tax-free.

What are the benefits of an ISA?

There are many reasons to opt for a Cash ISA over alternative savings accounts. Not the least of these, is that they’re a great way of saving for your future. Other benefits include:

  • Currently, all basic rate taxpayers can earn £1,000 of tax-free savings interest per year, under the Personal Savings Allowance (PSA). However, there is no guarantee that this won’t change in the future. With ISAs, you’re guaranteed your savings will always be tax-free. Investing your allowance each year means you can grow your savings without having to pay any tax.
  • If you were to opt for an alternative regular savers account and savings interest rates increased, the money you’d saved may tip you over the Personal Savings Allowance limit.
  • Some types of Cash ISA come with the added benefit of government boosting. For example, the 25% government bonuses offered with Help to Buy ISAs and Lifetime ISAs. 

Are ISAs tax-free?

Yes, with a Cash ISA you can rest assured your savings are not only tax-free, but safe from changing regulations.

The only time when a Cash ISA isn’t exempt from tax is if you are aged 16 or 17 years old, and the money in your account is a gift from a parent. If this is the case, your parents may have to pay tax if parental settlement rules apply.

Cash ISA rules

  • To be eligible for a Cash ISA, you must be aged 16 or over and a UK resident. The only exception to this is in the case of Lifetime ISAs, that require you to be 18 years old
  • You can only open one Cash ISA per year
  • You have a single ISA allowance each year, which you can divide between a Cash ISA, a stocks and shares ISA, an Innovative Finance ISA and/or a Lifetime ISA. With a Lifetime ISA, the maximum allowance is £4,000 each year, meaning you have up to £16,000 to split between the other types

How much can I put in an ISA?

The total amount you can put into a Cash ISA for the 18/19 tax year is £20,000. This is known as the ISA allowance and is available to every person over 16 in the UK. You have the choice of using up the maximum allowance in one account, or splitting between the different types of ISA products.

Any interest your ISA earns doesn’t count towards your Personal Savings Allowance.

When is the ISA deadline?

The ISA deadline is midnight on 5th April each year; this is the end of the tax year. Any unused allowance doesn’t roll over into the new tax year, so you should try to make the most of your allowance before the deadline comes around. For more information on the ISA deadline, refer to our ISA deadline guide.

What are the different types of Cash ISA?

There are a number of different Cash ISAs available to help you achieve your savings goals. Whether you’re saving for your first home or setting up a nest egg for your golden years, there’s an option to suit you.

Fixed Rate ISAs

A Fixed Rate ISA pays a guaranteed amount of interest for a set period of time, from six months to five years. Though withdrawals are permitted, they’re subject to penalties. Consequently, a Fixed Rate ISA is better suited to those who won’t need immediate access to their savings.

Help to Buy ISAs

A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit on your first home. To qualify, you can’t own a property anywhere in the world.

You can save up to £200 a month in a Help to Buy ISA, and they come with the added bonus of government contributions. In this case, your savings could be boosted by 25%. The minimum government bonus is £400, so you will have to have saved at least £1,600 to qualify for a government bonus.Please note, Help to Buy ISAs are due to be withdrawn in November 2019.

Lifetime ISAs

A Lifetime ISA is a tax-free savings account that also offers a government bonus of 25% on top of the money you put in, up to a maximum of £1,000 a year. With a Lifetime ISA, you can deposit as much as £4,000 per year until the age of 50. Lifetime ISAs can only be opened and funded by those aged 18 to 39.

Junior ISAs

Junior ISAs are tax-efficient ways of saving for your little one’s future. You must be 16 or over and a UK resident to open a Junior ISA on behalf of a child, or be a child aged 16 to 18 to open one for yourself. The Junior ISA allowance for 2019/20 is £4,368.

Find everything you need to know about Junior ISAs here.

Refer to our Cash ISA page to discover the full range of ISAs available with Newcastle Building Society.

How many ISAs can I have?

You can have multiple ISAs at one time, but you can only open or pay into one of each type of ISA using your £20,000 allowance. 

Though you can only open one Cash ISA each tax year, there’s no limit to the number of ISA transfers you can make, should you spot a better interest rate with another provider. However, with Newcastle Building Society, you can open multiple cash ISAs using our CustomISA service. You can find more about that here.

What happens if I take money out of my ISA?

Withdrawals are permitted from most ISAs. However, if you make a withdrawal from a Fixed Rate ISA, you will be subject to a penalty in the form of a loss of interest on your savings.

If you think you will need access to your savings quickly, then you may be best suited to an ISA that doesn’t penalise withdrawals.

In relation to the Lifetime ISA a penalty of 25% of the withdrawal amount will be deducted unless the funds are being used for either:

  • Buying your first house (the account must have been held for a minimum 12 months)
  • You reach the age of 60
  • You are diagnosed with a terminal illness and have less than 12 months to live

Can I transfer my ISA to another provider?

You are permitted to unlimited transfers each tax year. However, you should always check that your new provider accepts transfers, as not all banks and building societies are obliged to do so

Avoid withdrawing money from your ISA yourself, as your savings may lose their tax-free status!

There are a number of reasons you may want to transfer to a new provider. For example, if you’ve spotted better rates elsewhere. Read our complete guide to the ISA transfer process for more information.

Can I inherit an ISA?

If your spouse or civil partner passes away, you will be eligible to receive an Inheritance ISA Allowance. Read more information about inheritance tax allowance in our helpful inheritance tax allowance guide.

Applying for a Cash ISA with Newcastle Building Society

If you'd like to apply for a Cash ISA at Newcastle Building Society, the process is really simple. We also accept ISA transfers, including Lifetime ISAs. To get the ball rolling, simply browse our Cash ISA product range or contact us.​

What is the Personal Savings Allowance 2019/20?

Everyone has a Personal Savings Allowance (PSA). This is a maximum amount of savings income your savings can earn without being taxed, and is decided based on your total taxable income.

The Personal Savings Allowance was introduced on 6th April 2016, and was a radical reform that meant savers only have to pay tax on the interest that exceeds their personal allowance.

The personal savings allowance 2019/20 for basic rate taxpayers is £1,000.

In this guide, you will find information on:

  • What is my personal savings allowance?
  • What is savings income?
  • Does ISA interest count as savings income?
  • Who pays tax on joint account interest?
  • How do I claim back tax I’ve paid on other savings income?
  • Is Personal Savings Allowance in addition to Personal Allowance?

What is my Personal Savings Allowance?

Your Personal Savings Allowance depends on which tax band you fall into. See the table below showing the different savings allowances per tax threshold.

 

Band

Personal Savings Allowance

Individuals

No tax to pay

Basic Rate

No tax to pay up to £1,000

Higher Rate

No tax to pay up to £500

Additional Rate

No Allowance

 

If you’re not sure which UK tax band you fit into, refer to the table below.

 

Band

Taxable Income

Individuals

Up to £11,850

Basic Rate

£11,851 to £46,350

Higher Rate

£46,351 to £150,000

Additional Rate

Over £150,000

 

What is savings income?

Savings income includes:

  • Any interest your savings earn
  • Interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • Income from government or company bonds
  • Some types of purchased life annuity payments and gains from certain contracts for life insurance

Does ISA interest count as savings income?

No, ISA income does not count towards your Personal Savings Allowance. So you can earn tax-free interest, and still benefit from the full £1,000 Personal Savings Allowance.  For more information on the tax benefits of saving with a Cash ISA, read our full guide here.

The following also doesn’t count towards your Personal Savings Allowance:

  • Any savings income that’s covered by a saver’s tax-free personal allowance or the 0% rate for savers with lower earnings
  • Dividend distributions (these are covered separately by the Dividend Allowance. Find more on that here)
  • Account rewards that are not interest or returns on amounts saved

Who pays tax on joint account interest?

If you share a savings account with your spouse or partner, your Personal Savings Allowance still applies. Taxation on joint accounts is split equally, so you should count 50% of the account’s interest towards your own Personal Savings Allowance.

This is even the case if you and your partner are in two different tax thresholds. For example, if you are a basic rate taxpayer and your partner is a higher rate taxpayer, then half of the interest will count towards your basic rate PSA of £1,000 and half will count towards your partner’s higher rate PSA of £500.

How do I claim back tax I've paid on other savings income?

You can claim back any tax that was wrongfully taken off by filling in an R40 form (or an R43 if you live overseas), and sending this to HMRC.

Self-assessment tax return forms are available online at Gov.uk. It’s important to remember to complete your self-assessment before the deadline.

Is Personal Savings Allowance in addition to Personal Allowance?

Yes, your Personal Savings Allowance and your Personal Allowance are completely separate. Your Personal Allowance is the amount you can earn without having to pay income tax, whereas your Personal Savings Allowance exclusively applies to any earnings your savings make.

Still unsure about paying tax on savings interest? Find out more about your Personal Savings Allowance by contacting us.