Savings interest and tax

[Drumroll]

I have just gone onto our building societies account and they have today paid in my interest for my accounts. Does that mean that I will have to declare both lots of interest (they paid interest last year after the 4th April) when I submit my returns?

[fat80b]

The cutoff date is the 6th of April no? - Not the date you submitted aanything, but the actual date of the start/end of the tax year?

[Eric Mc]

If you complete tax returns as a matter of course, you should include interest income on the return. If your total interest is under £1,000, there will be no additional tax to pay.

Obviously, you can ignore interest received on an ISA.

The next tax return that people will need to submit is for tax year 2025/26 i.e. the year ended 5 April 2026. So, any interest received in the year to 5 April 2026 needs to be entered on the return.

The filing deadline for the 2025/26 tax return is 31 January 2027.

[croyde]

What does one do if you don't submit a tax return because of having been on PAYE but have earned some interest well under the personal allowance and no longer working.

Thus trying, unsuccessfully, to live off the interest

Cheers.

[maccboy]

Drumroll said:

I have just gone onto our building societies account and they have today paid in my interest for my accounts.

Did you take your pass book? It's like the 1980s all over again!

[Eric Mc]

croyde said:

What does one do if you don't submit a tax return because of having been on PAYE but have earned some interest well under the personal allowance and no longer working.

Thus trying, unsuccessfully, to live off the interest

Cheers.

Nothing, I would suggest.

If your total income from all sources for the year is less than £12,570, then you will not be liable to any Income Tax.

The obvious question though, is how you can live at such a low level of annual income - unless you are drawing down capital sums from your savings to supplement the investment income.

[croyde]

I am currently.

[5pen]

My recent experience suggests that the Building Society will inform HMRC who will in turn make an adjustment to your tax code for next year to collect any tax due. My mum earned just over £1000 from a Nationwide account and that’s what happened to her.

HMRC also made an “untaxed interest” adjustment to my tax code for the exact amount of interest I’d earned from 2 savings accounts. They shouldn’t have because the total was well under the tax-free limit, but it demonstrates that they will know about the interest.

[LeoSayer]

Eric Mc said:

If your total income from all sources for the year is less than £12,570, then you will not be liable to any Income Tax.

Further to this, the "starter rate for savings" will apply alongside the "personal savings allowance" meaning you can earn a further £6k of interest tax-free.

https://www.moneysavingexpert.com/savings/tax-free...

[uknick]

If your non taxable savings income, ISAs and and any other tax free investments, is greater than £10,000 then you do have to register with HMRC for self assessment even if you don't owe any tax.

https://www.moneysavingexpert.com/family/self-asse...


And to be pedantic, the cut off date for the tax year is midnight on the the 5th April, not the 6th.

[Panamax]

Drumroll said:

Does that mean that I will have to declare both lots of interest (they paid interest last year after the 4th April)

Some banks are a p.i.t.a and pay interest on 31 March, giving very little time to finesse your year-end tax position if you're near one of the cliff edges. I anticipate you may have opened new accounts to benefit from a new bonus rate or something like that.

Tesco Bank does its utmost to make life confusing with its approach to interest payment,
"Internet Saver: Standard interest is paid on 31 March, while bonus interest is paid on the anniversary of account opening."

I'm on my 14th consecutive account with them....

[Countdown]

Eric Mc said:

If you complete tax returns as a matter of course, you should include interest income on the return. If your total interest is under £1,000, there will be no additional tax to pay.

A minor point; if you're a higher rate taxpayer your tax-free limit for interest is £500, and zero if you're an additional rate taxpayer.

[raceboy]

Pretty sure I'm burying my head in the sand and waiting for a kick in the arse but as I've always been PAYE and never broke any interest income ceilings before I've never worried about self assessment.
But now with a lower threshold and increased interest rates I've probably exceeded my allowances, not massively in 24/25 but I will by a greater level in 25/26 mainly due to the sale of some shares, and increased savings.
I did get a letter from HMRC regarding tax codes earlier this year, didn't really explain a great deal and I've noticed my tax code has changed to 1195L W1M1 and this month my tax deduction is very slightly higher (less than £5).
Am I fooling myself that HMRC will just take what I owe via my PAYE salary, no more. no less, and when I'm straight we'll go back to the normal tax code and crack on earning/saving/taxing, or should I be looking into self assessment for 25/26 year?

[Eric Mc]

Countdown said:

A minor point; if you're a higher rate taxpayer your tax-free limit for interest is £500, and zero if you're an additional rate taxpayer.

Yep - lots of over complication in the UK tax system these days.

[Panamax]

Eric Mc said:

Yep - lots of over complication in the UK tax system these days.

Including Rachel's new +2% on some unearned income.
IIRC the new stuff is,
+2% on dividend income from 6 April 2026, and
+2% on savings and rental income from 6 April 2027

Always "making things simpler" is Rachel's special skill. Well, that and "growth".

So give you a savings income allowance of £1,000 (or £500) and then perhaps only tax the first £5,000 at a nil rate (or something) but a 2% surcharge if you do need to pay tax. No, I really don't understand it all.

[Eric Mc]

Panamax said:

Including Rachel's new +2% on some unearned income.
IIRC the new stuff is,
+2% on dividend income from 6 April 2026, and
+2% on savings and rental income from 6 April 2027

Always "making things simpler" is Rachel's special skill. Well, that and "growth".

So give you a savings income allowance of £1,000 (or £500) and then perhaps only tax the first £5,000 at a nil rate (or something) but a 2% surcharge if you do need to pay tax. No, I really don't understand it all.

The extra tax on dividends and interest is because they can't charge NI on that type of income.

[Armitage.Shanks]

uknick said:

If your non taxable savings income, ISAs and and any other tax free investments, is greater than £10,000 then you do have to register with HMRC for self assessment even if you don't owe any tax.

https://www.moneysavingexpert.com/family/self-asse...


And to be pedantic, the cut off date for the tax year is midnight on the the 5th April, not the 6th.

It says 'excluding ISA tax free savings and investments'. Inside this wrapper it has nothing to do with HMRC. I've 'earned' more than this over the years on many occasions and have not disclosed it.

In terms of interest in excess of what's allowed HMRC have usually written to me (invited me to read a message on my Gateway account) to inform me of tax due on normal savings giving me the option to pay it or adjust my tax code. Given it's usually a few thousand I'd rather just pay it than lose it from my monthly pension income. Proves they're fully joined up to the banking institutions to know what you've received without you telling them.

[Countdown]

Eric Mc said:

Panamax said:

Including Rachel's new +2% on some unearned income.
IIRC the new stuff is,
+2% on dividend income from 6 April 2026, and
+2% on savings and rental income from 6 April 2027

Always "making things simpler" is Rachel's special skill. Well, that and "growth".

So give you a savings income allowance of £1,000 (or £500) and then perhaps only tax the first £5,000 at a nil rate (or something) but a 2% surcharge if you do need to pay tax. No, I really don't understand it all.

The extra tax on dividends and interest is because they can't charge NI on that type of income.

It levels the field (a little ) between those on PAYE and those taking income as dividends.

[Smidge001]

Drumroll said:

I have just gone onto our building societies account and they have today paid in my interest for my accounts. Does that mean that I will have to declare both lots of interest (they paid interest last year after the 4th April) when I submit my returns?

I'm not sure anyone has actually answered your question. Assuming you mean last year's interest was paid on or after 6th April (4th isnt the cut off, as already identified by the first poster), with this year's being before the 6th, then yes, both sets of interest fall into this tax year. For personal tax it's cash based, so based when you received it, not what year it actually relates to.

It's one of the reasons fixed term accounts often point out the choice between monthly, annual or end-of-term interest may well depend on your tax circumstances.