Following the introduction of the Personal Savings Allowance (PSA) on 6 April 2016, many individuals will not pay tax on their savings income, and banks and building societies are no longer required to automatically deduct tax from the interest that is paid to customers.

The PSA applies a new 0% rate for up to £1,000 of savings income for a basic rate taxpayer, and up to £500 for a higher rate taxpayer. There is no allowance for additional rate taxpayers.

However, the situation is not necessarily straightforward for all types of savings income. Some forms of interest (such as corporate bonds listed on the London Stock Exchange) have always been paid gross, and this will continue.

In addition, for the 2016/17 tax year, basic rate tax will continue to be deducted at source from some savings income, including interest distributions from open-ended investment companies, authorised unit trusts and investment trusts.

Legislation is set to be introduced from April 2017 to remove these requirements, bringing these types of savings income into line with the treatment of bank and building society interest as covered by the PSA.