Is the extra you get on your current account tax free?
The answer is maybe
If you receive interest on your current account then it will almost certainly be tax free. It will count to your new personal savings allowance which allows basic rate tax payers to earn up to £1000 a year in interest without paying any tax. Higher rate tax payers can receive up to £500 tax free while additional rate payers who earn £150,000 or more do not benefit.
However, some banks or building societies give a reward on a current account by way of an annual payment these annual payments will have 20% tax deducted automatically and should be shown on your tax return.
The table below shows how the allowances apply to various accounts.
We are told that this personal savings allowance was meant to make things simpler. Nothing in tax is simple, maybe simpler than it used to be but it is not simple!!
HOW THE ALLOWANCE APPLIES TO YOU
|CURRENT ACCOUNT||WHAT YOU GET||IS 20% DEDUCTED AUTOMATICALLY?||IS IT INCLUDED IN THE SAVING ALLOWANCE?|
|Halifax Reward||£5 a month||Yes||No|
|Barclays with Blue Rewards||£7 a month||No||No|
|Co-operative with Everyday Rewards||£4 a month||Yes||No|
|NatWest Reward||Up to 3% cashback||No||No|
|TSB Classic Plus||5% interest on up to £2,000||No||Yes|
|Santander 123||3% on balances of £3,000 to £20,000||No||Yes|
|Nationwide FlexDirect||5% on up to £2,500||No||Yes|