The introduction of the new Savings Allowance on 6 April 2016 means that the majority of taxpayers will not pay any tax on their interest.
On 6 April 2016, the Savings Allowance was introduced into our tax system. This new allowance applies a 0% rate for up to £1,000 of interest receipts for a basic rate taxpayer and up to £500 for a higher rate taxpayer
The government has removed the requirement (from 6 April 2016) for banks and building societies to deduct tax from account interest they pay to customers. Which, in simple terms, means that the most taxpayers will not pay tax on their interest.
However, in 2016/17 basic rate tax will still be deducted at source from some forms of savings income such as interest distributions from unit trusts and OEICs. The government proposes to remove this requirement from April 2017.
Savings allowance of £500
Of course, if your interest income exceeds the Savings Allowance, there will be extra tax to pay. If you are a higher rate taxpayer, you are more likely to be in this position as the Savings Allowance is only £500.