Is interest taxed based on the financial year it's earned or paid?

shortcrust

I've not been paying tax this year as I've been studying but I'll be earning again (hopefully!!) in 2013/14. I have money in a savings account that will pay out annual interest in July. Will the whole lot be taxed because it's classed as 2013/14 income or will tax only be paid on the interest earned from April onwards? Was I daft to go for annual interest?!

Lokolo

You pay tax on interest when it is recieved not when it is earned. So you will pay tax on the whole lot of interest.

If you went for monthly interest then you would not be paying interest on the months until the new tax year.

However if there are no penalties for closing the account now. You can close it fully and get any interest due (and not pay tax). Then open a new account elsewhere and deposit the money into there.

YorkshireBoy

Question may be irrelevant if you haven't submitted an R85, because it'll be taxed anyway.

If you're not a tax payer next year you'll have to reclaim the tax paid via an R40.

But to answer your thread title, the interest is taxed when paid, not when earned.

If it's substantial, and there are no penalties, then consider closing the account before 5th April?

Lokolo

YorkshireBoy wrote: »

If it's substantial, and there are no penalties, then consider closing the account before 5th April?

Great minds.

shortcrust

Thanks for the good advice. It simply hadn't occurred to me to close it before the end of the tax year! It's a Santander esaver and they sorted the R85 out when I applied over the phone. I'll lose about £90 if I just wait until July so it's definitely worth sorting out.

Biggles

shortcrust wrote: »

I'll lose about £90 if I just wait until July so it's definitely worth sorting out.

It's pretty marginal.

If you'll have earned £450 interest by Jul, you'll forego £112.50 by closing three months early to save £90 tax.

And, if you don't start earning till, say, term ends at the end of summer, you may not be liable to tax on the full year's income anyway.

Hardly seems worth the effort.

grey_gym_sock

Biggles wrote: »

If you'll have earned £450 interest by Jul, you'll forego £112.50 by closing three months early to save £90 tax..

you don't lose the £112.50, because after closing the account, you put the money in another interest-paying account. if it has a lower interest rate, you lose some of the £112.50.