From April 2015 people whose taxable income is less than £15,600 do not pay any tax on their savings income.
A Personal Savings Allowance for £1,000 of interest on savings is to be introduced from April 2016, for those with taxable income of less than £42,700 per year. For those whose taxable income is between £42,701 and £150,000 the Personal Savings Allowance will be £500. For additional rate tax payers (over £150,000) no allowance is available.
This will prevent 95% of savers paying tax on their interest, according to government figures. Accordingly, from April 2016 banks and building societies will cease to deduct 20% income tax on interest payments.
There is also to be more flexibility with ISAs both in respect of their investments and for investors, who will be able to withdraw and repay cash from their ISA within a tax year.
These measures are expected to cost the Exchequer over £1 billion in the next tax year and between £565 million and £765 million in the following three tax years.