Reader questions: What tax-free savings interest am I allowed?

Can I get the savings allowance on interest earned by my deposit account as well as an ISA?

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Robert, whose cash ISAs earn about £500, asks: “Can I also get the savings allowance on interest earned by my deposit account?”

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Yes. The interest earned on savings in a cash ISA is completely free of tax. It’s invisible to HMRC, so the first £1,000 of interest on any non-ISA savings is also free of tax, covered by the £1,000 per year savings allowance.

If you pay  higher-rate tax, the allowance is £500, and zero if you’re on the top rate of 45% (or 46% in Scotland).

In addition, people on low incomes can have up to £5,000 in savings interest taxed at 0%.

If your non-savings income is no more than the personal allowance (£11,850 this tax year, and £12,500 for 2019—20), the first £5,000 of savings income is taxed at 0%. And the next £1,000 is tax-free, thanks to the savings allowance. So, from 6 April (on top of any ISAs interest) your annual income can be £18,500 (£12,500 personal allowance plus £5,000 of savings interest and £1,000 savings allowance) with not a penny in tax to be paid. This applies in Scotland, too, even though income tax rates and bands are different.

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For information, go to gov.uk and search “tax on savings”. Email your questions to paul.lewis@radiotimes.com