When to declare interest on Fixed rate 3 year account that is accrued to that account

ashteadgirl

When should the interest be declared on tax return for a 3 year fixed rate account were the annual interest is accrued to the account and no early access to account is permitted.
I have previously declared it each year it is earned but am now wondering whether it should all be declared when the account closes
and therefore becomes accessible.
Anyone able to help... Thanks

Motormad

I think you were doing it the right way at time it was added for tax purposes.

AnotherJoe

Its hard to get a definitive answer from HMRC.
The example they show, for money that is accrued but inaccessible says it should be at the point when it becomes accessible, but unfortunately the example they give is not the simple case of an interest account which millions have and thus woudl be useful and provide a clear answer, but instead an obscure business loan :mad:

Since their rules in general are that its declared when you can access it, then i think it should be when its available, eg in your case, end of the period and not when its paid.

badmemory

I am not sure I agree. Several years ago the banks added all the interest at the end of the fixed period. Then "they" changed the rules on how interest was taxed & even though you could not withdraw the money until the fixed period was over the interest was charged during the receipt tax year. Since then all that has changed is that some interest has tax charged at 0%.


Most banks now issue an interest version of a P60 annually. This indicates the period in which the tax is payable.

AnotherJoe

badmemory wrote: »

I am not sure I agree. Several years ago the banks added all the interest at the end of the fixed period. Then "they" changed the rules on how interest was taxed & even though you could not withdraw the money until the fixed period was over the interest was charged during the receipt tax year. Since then all that has changed is that some interest has tax charged at 0%.


Most banks now issue an interest version of a P60 annually. This indicates the period in which the tax is payable.

Good point. Ive just checked one of my Atom accounts which is 1 year fixed but monthly interest and it has a statement there of each monthly payment.

antrobus

The answer is to be found in SAIM2440;

ITTOIA05/S370 provides that tax is charged on the full amount of interest arising in the tax year. .....

Interest ‘arises’ when it is received or made available to the recipient. Interest has been made available if it is credited to an account on which the account holder is free to draw.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440

So if you have, for example,a fixed rate 3 year account, that does not permit withdrawals before maturity, then all the interest is taxable on maturity. Whether or not the bank credits interest to the account annually or whatever is not relevant.

xylophone

But be careful....

https://www.telegraph.co.uk/money/ask-a-money-expert/when-does-the-interest-on-my-fixed-rate-bond-contribute-to-my-pe/

However, if you had a bond that permitted you to draw on your savings during the term, it would contribute towards your PSA each year. This would apply even if the bond charged an access penalty.

For example, NS&I’s Guaranteed Growth three-year bonds pay the 4pc interest annually. Savers cannot access their money unless they surrender 90 days interest. The interest earned each year would contribute to their PSA as it is technically available.

An HMRC spokesman explained: “The existence of an interest penalty does not mean that the saver is not free to draw on their savings.”

A basic rate taxpayer who put the maximum £10,000 into NS&I’s three-year bond will earn £400 in year one, £416 in year two and £432 in year three. Each year, these returns would contribute to the PSA.

The rules on interest and access for each account will vary so savers should consult their terms and conditions.

AnotherJoe

Thanks folks. Seems pretty clear then.
If its fixed term and no withdrawals even under penalty, then tax only applies when term ends
Otherwise, it applies as its paid.

Shedman

As I raised in another thread on this same issue ...then what is the point of monthly interest on a one year fix, given they adjust interest to give same AER. And why therefore do the banks produce Section 75 statements that show that interest credited monthly during a tax year even though funds are not available until the next tax year. Somebodies not getting it right and it has potentially quite big implications for some people's planning (mine included).
.
It also makes it tricky to keep track when 90 day notice accounts pay on the quarter days (30 Jun, 30 Sep, 30 Dec, 31 Mar) as technically the interest paid in Mar shouldn't be included until next year as you can access it without the 90 days notice.

B*ggers muddle as usual when it comes to tax

AnotherJoe

I agree Shedman, no doubt there's a lot of incorrect tax statements being made as a result of these statements.

polymaff

Shedman wrote: »

...then what is the point if monthly interest on a one year fix

Do you mean "of"?