Q & A with Martin Copland of Ashdown Hurrey

Martin Copland
Martin Copland


I am retired and receive a state pension and a private pension. I also have a fairly large amount of savings. I noticed that my latest interest receipt did not have 20% tax deducted as previously. I did hear something about the rules changing as to how interest is taxed and would like to know if and how this affects me?

Mr T, Bexhill


As you have heard, there has been a big shake up in the world of savings. From 6 April 2016, savings interest is paid gross. This means that it is paid to you with no tax deduction. Previously, interest income, apart from that earned through an ISA, has been taxed at 20%. This meant that for every £1 of interest earned on your savings, you would only pocket 80p. The government predict that this change will lead to 95% of UK adults no longer paying tax on any savings.

However, although interest is now paid tax-free, this does not necessarily mean you are not liable for any tax due to H M Revenue & Customs. The introduction of a Personal Savings Allowance states that basic rate (20%) taxpayers will be able to earn up to £1,000 of interest and higher rate (40%) taxpayers can earn up to £500 without paying any tax. Additional rate (45%) taxpayers do not receive a Personal Savings Allowance.

If your savings interest for the year exceeds the relevant level for your income band, then you will have to pay tax on the amount of interest earned over the Personal Savings Allowance. So, if you are a basic rate taxpayer who earned £1,200 in interest, you would pay tax at 20% on £200.

For those that already complete a Self-Assessment tax return, they would continue to pay tax through the Self-Assessment system. As you state that your only income is from pensions and savings interest, it is unlikely that you complete a tax return and therefore H M Revenue & Customs can collect the tax from you by adjusting your tax code. In your case, it is likely that your tax code for your private pension will be adjusted.

You will need to notify H M Revenue & Customs if you believe that your interest income will exceed the Personal Savings Allowance.


If you are unsure and would like to discuss your circumstances in greater detail, Ashdown Hurrey can advise on personal tax matters in addition to other tax, accountancy and business matters. Contact Martin Copland on 01424 720222 or email him at martinc@ashdownhurrey.co.uk.ashdown hurrey