Savings interest & tax on fixed term accounts

ljayljay

After reading various articles & previous posts I am now a little unclear on how interest is treated on fixed term accounts.

For example, I have a joint long-term fix with RCI that pays less than £1,000 per year interest, we are BR taxpayers, so assumed no tax payable. However, on maturity the total interest will exceed £2,000 so am now not so sure as the interest will all be paid out in the same year. From memory we were able to choose how the interest was paid & opted for the compounded rate. Furthermore, we did each receive a statement from RCI for 21/22 providing details of interest earned that advised to keep for tax purposes so am thinking that must be the figure reported to HMRC.

However, my wife has since opened another long-term fixed account with Nationwide & we are now starting to be a bit unsure how all the interest on the various savers will be apportioned. I am aware that the joint accounts will be 50/50.

For example, is it all dependent on how the information is reported to HMRC by the savings institutions? if so, seems a bit unclear on what the responsibilities of the individual taxpayer are in this process.

Irrespective of the outcome do we just leave it up to HMRC to deal with as I assume that the savings providers will notify them? NB, I did do a self-assessment last year & have therefore already reported my share of the RCI interest. However, this was only because I had CGT to pay. Otherwise, we are not normally required to do a Self-Assessment.

I also need to be aware of the process before we open any further long-term fixes.

Albermarle

You only need to do a self assessment for savings interest if it is above £10K. Otherwise it all gets handled by HMRC ( in time ), although not everybody is that confident that they always have the correct figures.

As I understand the reporting issue. HMRC only work on when the interest figure is provided to them.

I agree from previous posts it is not 100% clear about when providers report interest from fixed term savings longer than one year, in all situations.

If the interest is paid out of the account ( into your current account) each year, then it is clear this will be reported to HMRC at the time.

If the interest is kept in the account and is unavailable until the fixed term ends, then HMRC guidance seems to be that interest should be reported at the end of the fixed term.

However most providers seem to report it annually anyway . Possible there is a difference whether  you ask for the interest to be added annually, or not . Although in theory it is still unavailable to you.

If you phone the provider to explicitly ask how it works, the person answering the phone may not know/understand.

wmb194

Even though you chose not to, RCI gives the option at opening to have the interest paid away so this should be reported annually as it was, 'available for withdrawal.'

Nationwide's latest version of its online bonds doesn't give the option to have the interest paid away during its term so therefore, in theory, all the interest arises in the tax year the bond matures.  However, posters in other threads say that Nationwide tells them that it plans to report the interest to HMRC annually.  So... *shrug.* Annually will probably suit most people anyway so I'd just treat it that way and not worry. HMRC won't notice, it'll simply trust whatever Nationwide tells it.

ljayljay

Albermarle said:

You only need to do a self assessment for savings interest if it is above £10K. Otherwise it all gets handled by HMRC ( in time ), although not everybody is that confident that they always have the correct figures.

Yes I did see this condition for doing self-assessment & even with the 'matured' interest will be well below £10K.

Albermarle said:

I agree from previous posts it is not 100% clear about when providers report interest from fixed term savings longer than one year, in all situations.

If the interest is paid out of the account ( into your current account) each year, then it is clear this will be reported to HMRC at the time.

If the interest is kept in the account and is unavailable until the fixed term ends, then HMRC guidance seems to be that interest should be reported at the end of the fixed term.

However most providers seem to report it annually anyway . Possible there is a difference whether  you ask for the interest to be added annually, or not . Although in theory it is still unavailable to you.

If you phone the provider to explicitly ask how it works, the person answering the phone may not know/understand.

wmb194 said:

Even though you chose not to, RCI gives the option at opening to have the interest paid away so this should be reported annually as it was, 'available for withdrawal.'

Nationwide's latest version of its online bonds doesn't give the option to have the interest paid away during its term so therefore, in theory, all the interest arises in the tax year the bond matures.  However, posters in other threads say that Nationwide tells them that it plans to report the interest to HMRC annually.  So... *shrug.* Annually will probably suit most people anyway so I'd just treat it that way and not worry. HMRC won't notice, it'll simply trust whatever Nationwide tells it.

Exactly....Surely it needs to be more precise.

Common sense & simplicity would suggest interest should just be allocated to the tax year it relates to. Otherwise there could be all sorts of anomalies meaning that individuals unwittingly underpay/overpay tax. For example on the self assessment for last year was I required to declare interest as per document received from RCI or should I wait for when it is paid in several years time when the account matures?

wmb194

ljayljay said:

Albermarle said:

You only need to do a self assessment for savings interest if it is above £10K. Otherwise it all gets handled by HMRC ( in time ), although not everybody is that confident that they always have the correct figures.

Yes I did see this condition for doing self-assessment & even with the 'matured' interest will be well below £10K.

Albermarle said:

I agree from previous posts it is not 100% clear about when providers report interest from fixed term savings longer than one year, in all situations.

If the interest is paid out of the account ( into your current account) each year, then it is clear this will be reported to HMRC at the time.

If the interest is kept in the account and is unavailable until the fixed term ends, then HMRC guidance seems to be that interest should be reported at the end of the fixed term.

However most providers seem to report it annually anyway . Possible there is a difference whether  you ask for the interest to be added annually, or not . Although in theory it is still unavailable to you.

If you phone the provider to explicitly ask how it works, the person answering the phone may not know/understand.

wmb194 said:

Even though you chose not to, RCI gives the option at opening to have the interest paid away so this should be reported annually as it was, 'available for withdrawal.'

Nationwide's latest version of its online bonds doesn't give the option to have the interest paid away during its term so therefore, in theory, all the interest arises in the tax year the bond matures.  However, posters in other threads say that Nationwide tells them that it plans to report the interest to HMRC annually.  So... *shrug.* Annually will probably suit most people anyway so I'd just treat it that way and not worry. HMRC won't notice, it'll simply trust whatever Nationwide tells it.

Exactly....Surely it needs to be more precise.

Common sense & simplicity would suggest interest should just be allocated to the tax year it relates to. Otherwise there could be all sorts of anomalies meaning that individuals unwittingly underpay/overpay tax. For example on the self assessment for last year was I required to declare interest as per document received from RCI or should I wait for when it is paid in several years time when the account matures?

As I wrote, declare the RCI interest annually as, unless your bond is the exception, it always gives the option to have the interest paid away. That's straightforward.

Albermarle

ljayljay said:

Albermarle said:

You only need to do a self assessment for savings interest if it is above £10K. Otherwise it all gets handled by HMRC ( in time ), although not everybody is that confident that they always have the correct figures.

Yes I did see this condition for doing self-assessment & even with the 'matured' interest will be well below £10K.

Albermarle said:

I agree from previous posts it is not 100% clear about when providers report interest from fixed term savings longer than one year, in all situations.

If the interest is paid out of the account ( into your current account) each year, then it is clear this will be reported to HMRC at the time.

If the interest is kept in the account and is unavailable until the fixed term ends, then HMRC guidance seems to be that interest should be reported at the end of the fixed term.

However most providers seem to report it annually anyway . Possible there is a difference whether  you ask for the interest to be added annually, or not . Although in theory it is still unavailable to you.

If you phone the provider to explicitly ask how it works, the person answering the phone may not know/understand.

wmb194 said:

Even though you chose not to, RCI gives the option at opening to have the interest paid away so this should be reported annually as it was, 'available for withdrawal.'

Nationwide's latest version of its online bonds doesn't give the option to have the interest paid away during its term so therefore, in theory, all the interest arises in the tax year the bond matures.  However, posters in other threads say that Nationwide tells them that it plans to report the interest to HMRC annually.  So... *shrug.* Annually will probably suit most people anyway so I'd just treat it that way and not worry. HMRC won't notice, it'll simply trust whatever Nationwide tells it.

Exactly....Surely it needs to be more precise.

Common sense & simplicity would suggest interest should just be allocated to the tax year it relates to. Otherwise there could be all sorts of anomalies meaning that individuals unwittingly underpay/overpay tax. For example on the self assessment for last year was I required to declare interest as per document received from RCI or should I wait for when it is paid in several years time when the account matures?

I think you can be pretty confident that as you were sent a document from RCI detailing the annual interest, that this is how it has been reported to HMRC.

ljayljay

Thanks....think i'll just pay a bit more attention in future especially with the higher returns. Also to save any uncertainty I will probably look to select payment of interest monthly/yearly when the option is available.

Meanwhile I will just keep a closer eye on my PAYE Gateway a/c.

Band7

If you are busting your PSA and haven't already used your ISA allowance, ISAs might simplify your affairs.