Interest at maturity on savings

A number of the 3 and 5 year accounts are only paying interest at maturity. Does the whole amount count for income  tax purposes the year they mature?
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  • eskbankereskbanker Forumite
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    Yes.      
  • edited 12 December 2022 at 12:05PM
    DeskDesk Forumite
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    edited 12 December 2022 at 12:05PM
    There's been some discussion about this recently in other threads, and some interesting observations.
    I spoke to one bank offering a multi-year fixed rate bond which pays interest annually, and where you have a choice each year as to whether to have interest paid away or paid into the account to continue compounding.
    They said that tax on the interest will be liable annually, on the basis that this interest is available to you at that point should you wish it.
    This was good from my perspective, as I was happier to be paying tax on interest annually rather than as one lump sum when the fixed rate bond reaches maturity.
  • lindabealindabea Forumite
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    Also, be careful with any 18 month savings bonds.  Depending on when you open it, the whole of the interest could fall within the same tax year
    Before doing something... do nothing
  • wmb194wmb194 Forumite
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    A number of the 3 and 5 year accounts are only paying interest at maturity. Does the whole amount count for income  tax purposes the year they mature?
    Were you given the option when applying to have it paid away? If yes, as Desk reports, then it's taxed annually.
  • AlbermarleAlbermarle Forumite
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    wmb194 said:
    A number of the 3 and 5 year accounts are only paying interest at maturity. Does the whole amount count for income  tax purposes the year they mature?
    Were you given the option when applying to have it paid away? If yes, as Desk reports, then it's taxed annually.
    Do you think this is 100% certain, as in other threads it seemed to be a grey area?
    All we seem to know for sure is that HMRC  will act on when the interest is reported. It is not totally clear ( in my opinion) that all savings providers are following exactly the same procedures on reporting timelines though.
  • art123_2art123_2 Forumite
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    Very confused by this.  I have a 2 year fixed rate bond with Allica Bank.  I did not have the option of taking annual interest, and the 1st year EARNED interest of £872 has just been added to my account at the end of November.  Next year I should EARN £890, a total of £1,762 interest.  As I understand the £1,762 cannot be split and the full amount must go into my tax return at the end of the 23/24 year, leaving me liable to pay tax on £1,762 - £1,000.  However, when I recently received notification of the interest EARNED added to my bond, I downloaded an "Annual certificate of interest for the tax year ending 5th April 2023"  which shows the £872 from Allica.  The certificate goes on to say "This is an important document which you may need to complete your tax return".  To me, this sounds like a contradiction on what has already been mentioned about the way that interest should be treated.  Can anyone please shed some light on this, and let me know exactly how my interest should be shown in 22/23 and 23/24 tax year.  Obviously if I can split it over 2 year the I can avoid any tax liability. 
  • edited 12 December 2022 at 4:59PM
    wmb194wmb194 Forumite
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    edited 12 December 2022 at 4:59PM
    wmb194 said:
    A number of the 3 and 5 year accounts are only paying interest at maturity. Does the whole amount count for income  tax purposes the year they mature?
    Were you given the option when applying to have it paid away? If yes, as Desk reports, then it's taxed annually.
    Do you think this is 100% certain, as in other threads it seemed to be a grey area?
    All we seem to know for sure is that HMRC  will act on when the interest is reported. It is not totally clear ( in my opinion) that all savings providers are following exactly the same procedures on reporting timelines though.
    Yep, see Xylophone's link, and there were lots of articles around this with quites from HMRC on e.g., This is Money at the time the NS&I 'Pensioner bonds' came out and caused this same chaos and uncertainty - they only paid at maturity and there was no option to have the annual interest paid away.

    The issue around how banks and BS' actually report is another issue and one I doubt e.g., Nationwide has considered correctly when it made its odd* choice not to allow the paying away of interest during the term. If the depositor was given the choice to have interest paid away at opening - i.e. it had been 'made available' - then annual reporting would be correct.

    *Odd because historically, as far as I'm aware, it always used to allow monthly or annual pay away.
  • edited 12 December 2022 at 5:23PM
    Nova1307Nova1307 Forumite
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    edited 12 December 2022 at 5:23PM
    Is interest reported to HMRC at the end of a tax year but not available until maturity (e.g. Nationwide 3 year bond) covered by FSCS protection? If not then perhaps it would be better to ensure that the total amount received at the end of the term (including compounded interest) doesn't exceed £85k?
  • AlbermarleAlbermarle Forumite
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    Nova1307 said:
    Is interest reported to HMRC at the end of a tax year but not available until maturity (e.g. Nationwide 3 year bond) covered by FSCS protection? If not then perhaps it would be better to ensure that the total amount received at the end of the term (including compounded interest) doesn't exceed £85k?
    You are covered up to £85K including any interest gained. If you think at the end of a fixed term the accrued interest will make the account go over £85K, you have three options
    1) Have the interest 'paid away' each month or year, if the account has that option.
    2) Put less in the account in the first place.
    3) Let it go a bit over £85K, the risk involved is pretty small.


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