Oak North - Maturity Only?

ChilliBob

Hey guys,

I'm considering an Oak North fixed account since, if I am reading correctly, interest is *only* paid at maturity - so in essence you'll only trigger a (potential) tax event after the fixed term is over. So, using a 4 year fixed rate as an example, to make sure I'm not misunderstanding:

* Open now.
* Maturity = 4th July 2027
* Tax Year for interest = 2027-2028
* Interest rate = 5.56
* Calculated daily, paid at the end
* £50,000 = £12,000 in interest  (Based on their website where 1k becomes 1.241k after the 48 month period).

I just want to make sure I've not missed anything there. It's obviously a bit of a gamble that rates would be lower by then so savings income would be lower than the next couple of years.

Am I on the money, of have I messed up?

Albermarle

With most fixed rate/long term savings accounts, interest is added to the account each year, although it is not normally withdrawable.
In this case it seems that providers will often report the interest to HMRC that year and it will be taxed as in that year, although this appears not to be exactly in line with their own rules. A bit of a grey area.
However if the provider explicitly says that interest will only be added to the account on maturity, then your figures are correct, and any tax due will be related to the £12K interest payable after 4 years.

Doctor_Who

ChilliBob said:

Hey guys,

I'm considering an Oak North fixed account since, if I am reading correctly, interest is *only* paid at maturity - so in essence you'll only trigger a (potential) tax event after the fixed term is over. So, using a 4 year fixed rate as an example, to make sure I'm not misunderstanding:

* Open now.
* Maturity = 4th July 2027
* Tax Year for interest = 2027-2028
* Interest rate = 5.56
* Calculated daily, paid at the end
* £50,000 = £12,000 in interest  (Based on their website where 1k becomes 1.241k after the 48 month period).

I just want to make sure I've not missed anything there. It's obviously a bit of a gamble that rates would be lower by then so savings income would be lower than the next couple of years.

Am I on the money, of have I messed up?

That's how I read it. There appears to be no access to the interest during the term. Obviously depends on when Oak North report the interest to HMRC, and this appears to be a very grey area for multi-year fixes (i.e. each year or in the year of maturity). You could ask Oak North how often they report the interest to HMRC.

ChilliBob

Thanks @Albermarle
These are a quote from their T&Cs for fixed accounts:

3.2. Interest will be calculated daily from the business day that your funds are received and applied to your OakNorth Bank Account balance on maturity. Interest will be calculated based on the end of day balance of your Account and compounded once a year. Even though interest is calculated on the end of day balance of your Account and compounded once a year, all interest is still only paid to you and applied to your OakNorth Bank Account on the maturity date and not before.

3.3. Fixed Term Deposit customers will get a statement/certificate of interest on maturity via email.

That to me seems pretty clear?

ChilliBob

Doctor_Who said:

ChilliBob said:

Hey guys,

I'm considering an Oak North fixed account since, if I am reading correctly, interest is *only* paid at maturity - so in essence you'll only trigger a (potential) tax event after the fixed term is over. So, using a 4 year fixed rate as an example, to make sure I'm not misunderstanding:

* Open now.
* Maturity = 4th July 2027
* Tax Year for interest = 2027-2028
* Interest rate = 5.56
* Calculated daily, paid at the end
* £50,000 = £12,000 in interest  (Based on their website where 1k becomes 1.241k after the 48 month period).

I just want to make sure I've not missed anything there. It's obviously a bit of a gamble that rates would be lower by then so savings income would be lower than the next couple of years.

Am I on the money, of have I messed up?

That's how I read it. There appears to be no access to the interest during the term. Obviously depends on when Oak North report the interest to HMRC, and this appears to be a very grey area for multi-year fixes (i.e. each year or in the year of maturity). You could ask Oak North how often they report the interest to HMRC.

I suspect I'll get a rather non commital response but I have emailed them.

I thought I had read somewhere that if you cannot access the interest then it's not applicable for tax purposes in that period. Which would make sense! But yeah to flip it around if they tell HMRC someone's earnt £X interest in a given year and it doesn't match with your records then that's a bit of grief probably

Doctor_Who

ChilliBob said:

Thanks @Albermarle
These are a quote from their T&Cs for fixed accounts:

3.2. Interest will be calculated daily from the business day that your funds are received and applied to your OakNorth Bank Account balance on maturity. Interest will be calculated based on the end of day balance of your Account and compounded once a year. Even though interest is calculated on the end of day balance of your Account and compounded once a year, all interest is still only paid to you and applied to your OakNorth Bank Account on the maturity date and not before.

3.3. Fixed Term Deposit customers will get a statement/certificate of interest on maturity via email.

That to me seems pretty clear?

Yes, that's clear. However, they may still report the interest earned each year to HMRC! 

Doctor_Who

ChilliBob said:

Doctor_Who said:

ChilliBob said:

Hey guys,

I'm considering an Oak North fixed account since, if I am reading correctly, interest is *only* paid at maturity - so in essence you'll only trigger a (potential) tax event after the fixed term is over. So, using a 4 year fixed rate as an example, to make sure I'm not misunderstanding:

* Open now.
* Maturity = 4th July 2027
* Tax Year for interest = 2027-2028
* Interest rate = 5.56
* Calculated daily, paid at the end
* £50,000 = £12,000 in interest  (Based on their website where 1k becomes 1.241k after the 48 month period).

I just want to make sure I've not missed anything there. It's obviously a bit of a gamble that rates would be lower by then so savings income would be lower than the next couple of years.

Am I on the money, of have I messed up?

That's how I read it. There appears to be no access to the interest during the term. Obviously depends on when Oak North report the interest to HMRC, and this appears to be a very grey area for multi-year fixes (i.e. each year or in the year of maturity). You could ask Oak North how often they report the interest to HMRC.

I suspect I'll get a rather non commital response but I have emailed them.

I thought I had read somewhere that if you cannot access the interest then it's not applicable for tax purposes in that period. Which would make sense! But yeah to flip it around if they tell HMRC someone's earnt £X interest in a given year and it doesn't match with your records then that's a bit of grief probably

I tend not to use multi-year fixes for this reason, if I do I specify monthly/quarterly or annual interest. I appreciate you may not want this if you have other income in the years before the fix matures and less/none in the year it matures, hence potentially within your personal allowance. Monthly/quarterly or annual interest makes things simpler since you know in which year the interest falls (as does HMRC). I think the issue of reporting interest to HMRC by providers is an admin one, it's easier to do once a year than report zero interest for 3 years and then the total interest in year 4.

ChilliBob

Yep, all my other fixes are monthly or yearly, which I like. This is more of a tactical option really, along with gilts. 

Ozzig

ChilliBob said:

Doctor_Who said:

ChilliBob said:

Hey guys,

I'm considering an Oak North fixed account since, if I am reading correctly, interest is *only* paid at maturity - so in essence you'll only trigger a (potential) tax event after the fixed term is over. So, using a 4 year fixed rate as an example, to make sure I'm not misunderstanding:

* Open now.
* Maturity = 4th July 2027
* Tax Year for interest = 2027-2028
* Interest rate = 5.56
* Calculated daily, paid at the end
* £50,000 = £12,000 in interest  (Based on their website where 1k becomes 1.241k after the 48 month period).

I just want to make sure I've not missed anything there. It's obviously a bit of a gamble that rates would be lower by then so savings income would be lower than the next couple of years.

Am I on the money, of have I messed up?

That's how I read it. There appears to be no access to the interest during the term. Obviously depends on when Oak North report the interest to HMRC, and this appears to be a very grey area for multi-year fixes (i.e. each year or in the year of maturity). You could ask Oak North how often they report the interest to HMRC.

I suspect I'll get a rather non commital response but I have emailed them.

I thought I had read somewhere that if you cannot access the interest then it's not applicable for tax purposes in that period. Which would make sense! But yeah to flip it around if they tell HMRC someone's earnt £X interest in a given year and it doesn't match with your records then that's a bit of grief probably

When asked for 22-23 tax year they replied ...

We can confirm that there will be no tax certificates for the 2022/2023 tax year as none of your accounts paid interest during the 2022/2023 tax year. 
Please note, once your accounts have matured and the accounts have been closed, you will receive a tax certificate by email.

Online it shows as "Interest Accrued" not paid.

ChilliBob

You'd think they would mean it's all just reported at the end wouldn't you, or it certainly looks more likely. 

Albermarle

ChilliBob said:

You'd think they would mean it's all just reported at the end wouldn't you, or it certainly looks more likely. 

That's how it looks.