When are you liable for tax on interest on a multi year bond (interest not paid away)?)

Bigwheels1111

I have some 5 and 7 year fixed accounts.

I made sure they are paid annually and away to my bank.

This is for income and to make sure I pay tax each year and not in one lump some.

I will have to fill out a Self assessment form next year but its very easy to do.

Albermarle

As I understand it, it all depends upon when the interest is made available to withdraw to the customer. If it is available to withdraw when the interest is credited to the account, that is the point at which it is taxed. However, if the interest is not available to withdraw until maturity, the. It will all be taxed at maturity.

That is the theory, but it seems that if the provider adds interest annually and notifies HMRC of that, then it is taxed then, even though it is not available.

My guess is that if HMRC get notified of an interest payment, they just put it in their system. They probably do not have the time or inclination to go back checking what sort of savings account it is,

kwangomango

Money_Grabber13579 said:

As I understand it, it all depends upon when the interest is made available to withdraw to the customer. If it is available to withdraw when the interest is credited to the account, that is the point at which it is taxed. However, if the interest is not available to withdraw until maturity, the. It will all be taxed at maturity.

This does seem to have been a recent change in policy from HMRC (NS&I got into a few problems when they started preventing access to fixed year bonds during the term) and I’ve noticed that at least one bank now states that for multi year bonds, the customer can withdraw the interest (but not the capital) annually, presumably to make sure that the interest is taxable annually.

Having done a little more research, it looks clear that this is correct and that the interest is due to be paid in the year of bond maturity:

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

'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. For additional guidance on when interest arises see SAIM2400'

'Example 2

Sam entered into a five year fixed-term bond on 6 April 2017. The bond credits interest to Sam’s account annually on the 31 December. Sam can only gain access to both the annual interest and the principal in advance of 5 April 2022 if a penalty is paid for early access.

Since the terms and conditions of the bond allow Sam to draw on the funds, although with a penalty, the interest arises and is taxable each year as it is credited.

If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point.'

Ozzig

As there isn't a mechanism to confirm which bank's notified interest is/is not accessible when filling in SA it comes back to calling them and presumably agreeing on a figure for the tax year.

I am not aware of anywhere on the HMRC website to obtain information about which bank has declared what interest has been paid. (SA or Personal Tax Account)

When I asked the banks I use what they have declared, some said nothing as it's only paid at maturity, others say whatever my statement for the tax year says regardless of if I can access it.

I'm half inclined to claim the problem is with the banks understanding.

kwangomango

When i spoke to United Trust, they told me that i would receive an interest certificate each year and it was my duty to liase with HMRC. They don't send them anything apparently.

eskbanker

kwangomango said:

When i spoke to United Trust, they told me that i would receive an interest certificate each year and it was my duty to liase with HMRC. They don't send them anything apparently.

They're obliged to submit annual BBSI returns to HMRC:

https://www.gov.uk/guidance/bank-and-building-society-interest-returns

Albermarle

I am not aware of anywhere on the HMRC website to obtain information about which bank has declared what interest has been paid. (SA or Personal Tax Account)

I think something was implemented but it did not work. There was a very long thread on the subject a couple of years ago.
Of course it does not help clear up this uncertainty when you can not actually see when interest is reported.