New zero tax rate bands confirmed - interest and dividends

22nd February 2016

Personal savings allowance. For 2016/17 individuals will be entitled to a new tax-free allowance for investment income such as bank interest. The so-called personal savings allowance (PSA) will be:

  • £1,000 for basic rate taxpayers
  • £500 for higher rate taxpayers

Taxpayers who pay tax at the additional rate of 45% will not be entitled to the PSA.

Dividend nil rate band

Also confirmed is that the first £5,000 of dividend income received by an individual on or after 6 April 2016 will be taxed at 0%. The amount of dividend nil rate used by an individual will be knocked off their basic rate band.

From 6 April 2016, if you’re a basic rate taxpayer, the first £1,000 of your savings income will be taxed at 0%. If you’re a higher rate taxpayer the amount is £500. Also the first £5,000 of your dividend income will be taxed at 0%.These new allowances will use part of your basic rate band.