Q: I was made redundant part way through the last tax year. I was a higher rate taxpayer but now live on income from my savings. What is my Personal Savings Allowance now and can I expect a tax bill?
A: As you were a higher rate taxpayer before being made redundant, you can expect to pay tax on any savings interest over £500 in the last tax year.
Depending on when you go back to work this tax year, you could remain as a basic rate taxpayer, so could earn £1,000 in savings interest tax-free. If you earn less than your personal allowance of £12,570 this tax year, you also receive the ‘starting rate for savers’ – an extra £5,000 tax-free allowance for savings income on top of the personal savings allowance of £1,000.
The starting rate for savers decreases by £1 for every £1 you earn over £12,570, so will disappear completely once you are earning £17,570. If you earn over £37,700 by then end of this tax year, your Personal Savings Allowance will drop to £500 again.
