Interest at maturity on savings

EthicsGradient

art123_2 said:

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. 

HMRC says that if you get a certificate showing the interest in a tax year, then the interest is taxed in that year:

"As you are notified annually of the interest, it is deemed to have been paid and should therefore be declared in that tax year. The certificate will confirm the year end date it applies to."

https://community.hmrc.gov.uk/customerforums/pt/125fb468-2427-ed11-b5cf-00155d9c6b71

Therefore, I reckon, as I said in my reply to that, that we must all demand tax certificates on all multi-year accounts, even if they show "£0.00 interest".

refluxer

art123_2 said:

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. 

The fact that you received a tax certificate would suggest to me that, as far as Allica are concerned at least, you should be taxed on the interest annually, regardless of whether you can actually access it before the end of the term or not.

It would be interesting to ask Allica when they actually report the interest to HMRC - the fact they are issuing you a certificate would suggest that this is also done annually, which goes against the statement in example 2 from that government link that says "If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point."

That government link badly needs updating with more relevant examples. 

art123_2

Thanks "EthicsGradient" for you response and clarifying my situation.  Good to know that I won't be liable for tax after all.