What is the Starter Rate for Savings Allowance?

The starter rate for savings allowance gives lower earners the benefit of not paying tax on some or all of their interest from savings.

If you don’t earn enough to pay tax then you don’t need the starter rate of savings allowance or the personal savings allowance.

For earnings over the tax free personal allowance you can be entitled to the starter rate for savings allowance and the personal savings allowance.

Do I qualify for the Starter Rate for Savings Allowance?

To qualify for the starter rate for savings allowance your income (that is not from savings) must be in between £12570 and £17570.

The tax free personal allowance covers income up to £12570 and this is when the starter rate for savings threshold begins.

If your other income is more than £17570 you will not be eligible for the starter rate but may still be entitled to the personal savings allowance.

Not earning above the tax free personal allowance means you shouldn’t need to pay tax on your interest from savings and therefore don’t need to use the starter rate for savings allowance.

How much is the Starter Rate for Savings Allowance worth?

The starter rate savings allowance is worth a maximum of £5000 per tax year. The starter rate decreases in value by £1 for every £1 of income received over the personal allowance up to the £17570 threshold.

For example if your other income totaled £15,000 you will need to minus the personal from your income total to give your starter rate for savings allowance.

In this example the calculation would look like £15000 – £12570 = £2430 starter rate for savings allowance.

What interest income is covered by the Start Rate for Savings?

Not all interest income is covered by the starter rate for savings. Some of the most common sources of interest which is covered by the starter rate includes:

• bank accounts.
• building society accounts.
• savings and credit union accounts.
• PPI refunds (only the interest part of any PPI payout).
• life annuity payments.

What is the Personal Savings Allowance?

The personal savings allowance is separate from the starter rate for savings and is worth £1000 per tax year for basic rate taxpayers and £500 for higher rate taxpayers.

Additional rate taxpayers are not given any tax free savings allowance.

After any tax free savings allowances have been deducted you will need to pay income tax on interest at the rate at which you normally pay tax.

In some cases you can qualify for the personal savings allowance and starter rate for savings at the same time.

Savings Interest tax rebate

A tax rebate can be due on income tax paid on savings interest with the R40 form needing to be submitted to HMRC for each tax year of your claim.

You can backdate a claim for tax paid on savings for up to four tax years with an individual R40 required for each tax year.

For self assessment taxpayers you won’t need the R40 and should instead include interest from savings in the appropriate section of your tax return.