Interest & tax

[Glosphil]

I have now (and in the past) savings accounts that span over two tax years but the interest can't be taken until the account matures in the second tax year, e.g., monthly savings accounts or bonds. However, the issuing bank or building society send a statement of the interest earned at the end of the first tax year although I can't access that interest (i have elected to have the interest added to the account). When the account matures I then receive a statement that shows the total interest earned over the whole period of the account. This second interest figure of course includes the interest that was shown on the first statement.

Are both statements used to report interest earned to HMRC? Is it then possible that I have in effect been taxed on the initial year's 'part interest' twice as it has been reported twice.

I've had similar when an account matured and I was sent a statement showing the original principle and the accrued interest as separate figures. When the total money in the account was then moved to another account instead of the closing statement showing the transfer of the total sum it was again shown as transfer of the original investment plus interest. So the interest has been shown on two separate statements. Could this cause double tax to be demanded?

[C69]

The bank / building society should be issuing a tax certificate for each tax year. The closing statement for the account is a separate thing, really (although the overall amount of interest shown as being added to the closed account will be the same as the total of your tax certificates).

So, if you open a two-year savings bond on 1st June 2024 and interest is added to the account monthly, then you'd receive tax certs for 2024-25 (10 months), 2025-26 (12 months), and 2026-27 (2 months).

If you use a mixture of tax certificates and account statements to complete your tax returns, then yes there could be a risk of double-counting.

[WhiskyDisco]

Until the account matures, and the interest is paid into the account you don't pay tax on it. In the case of a 2 year bond, tax would become payable when the interest has arisen - i.e. been paid to you.

[ferret50]

To keep things simple, try to use an ISA wrapper.

[C69]

WhiskyDisco said:

Until the account matures, and the interest is paid into the account you don't pay tax on it. In the case of a 2 year bond, tax would become payable when the interest has arisen - i.e. been paid to you.

I don't think that this is correct, because it depends when / how often the interest is credited to the account.

Banks / building societies have to submit a bank and building society interest (BBSI) return to HMRC each year. HMRC guidelines say that the banks / building societies "must report on all accounts that have interest paid or credited" and there's no mention of having access to the interest. The expectation is that the BBSI return will correspond to the issued tax certificates.

[YouWhatAgain]

C69 said:

I don't think that this is correct, because it depends when / how often the interest is credited to the account.

Banks / building societies have to submit a bank and building society interest (BBSI) return to HMRC each year. HMRC guidelines say that the banks / building societies "must report on all accounts that have interest paid or credited" and there's no mention of having access to the interest. The expectation is that the BBSI return will correspond to the issued tax certificates.

You are incorrect, you pay tax in the year you have access to the interest.

[Simpo Two]

Remember your personal savings allowance before paying any tax:

https://www.gov.uk/apply-tax-free-interest-on-savi...

Income Tax band Personal Savings Allowance
Basic rate £1,000
Higher rate £500
Additional rate £0

And to avoid any tax on savings at all, use Cash ISAs as said.

[Glosphil]

Thanks for the replies. Most of my savings are in ISAs & I've used my £20,000 allowance for a number of years (I'm retired so will get the £20k ISA allowance/year).

So far the comments are contradictory. Still not sure in which year I pay the tax - when interest credited or when I can access it.

Is the report to HMRC regarding interest received different to the account/interest statements sent to me?

[silentbrown]

Glosphil said:

So far the comments are contradictory. Still not sure in which year I pay the tax - when interest credited or when I can access it.

When you can *potentially* access it, so check the terms of your account. Some accounts the funds are 100% locked until the end of the term. Others, you can extract them subject to a penalty.

Old, but I think it's still right: https://www.which.co.uk/news/article/ask-an-expert...