Tax on 5 year fixed rate bonds

satlad

I've opened a 5 year fixed rate bond at 5.8% with JN Bank. Problem is they won't pay out interest annually to another account, I can only access the deposit and interest after 5 years. That will mean a sizeable tax bill, were as if I get paid interest on a yearly/monthly basis the interest would fall into my personal allowance as I'm  retired. Are there 5 year fixed rate bonds out there that pay the interest monthly or annually back into your current account so you can access it and declare it year on year.

masonic

Yes, it is the norm to offer a pay away option, but there are a few providers that do not support that.

EthicsGradient

Moneyfacts is good for details of accounts:
Best 5 Year Fixed Rate Bonds | Rates up to 5.85% (moneyfactscompare.co.uk)
Tandem pays 5.65% compared to the 5.85% of JN Bank, but it will pay the interest annually into a separate account, that says.

Dazed_and_C0nfused

satlad said:

I've opened a 5 year fixed rate bond at 5.8% with JN Bank. Problem is they won't pay out interest annually to another account, I can only access the deposit and interest after 5 years. That will mean a sizeable tax bill, were as if I get paid interest on a yearly/monthly basis the interest would fall into my personal allowance as I'm  retired. Are there 5 year fixed rate bonds out there that pay the interest monthly or annually back into your current account so you can access it and declare it year on year.

Have you asked them how they report the interest to HMRC?

If it's credited annually don't be surprised if it is reported like that to HMRC as well.

Although if you have to self assess its down to you to report the interest and up to HMRC to investigate if they think your return is wrong.

masonic

I think we've established elsewhere that savings providers are required to report interest credited within a tax year, even if it doesn't arise for tax during the tax year in question. But that they expect the taxpayer to inform them of any difference. The only question is under what circumstances an error would be identified.

I haven't seen the issue of what HMRC expects of those not on SA raised in their forums, but there is a general expectation to declare income arising from sources that don't report (correctly) to HMRC.

xylophone

https://portal.jnbank.co.uk/saving/fixed-term

Interest rate is calculated daily and paid annually into your fixed-term account


https://community.hmrc.gov.uk/customerforums/pt/4c90d80d-db77-ed11-97b0-00155d9c7b3d

masonic

xylophone said:

https://portal.jnbank.co.uk/saving/fixed-term

Interest rate is calculated daily and paid annually into your fixed-term account


https://community.hmrc.gov.uk/customerforums/pt/4c90d80d-db77-ed11-97b0-00155d9c7b3d

So then, as it can only be credited to the fixed-term account, which cannot be accessed until maturity, it would be treated the same as NS&I Guaranteed Growth Bonds:

"What this means is that income is taxable in the year in which it arises. In the case of GGB's, this would be the date the bonds mature, where you are unable to access the bonds for the whole term, until maturity. If you are able to access the bonds, then the interest would be taxable each tax year, in the year it arises"

See also https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688 for lots more discussion around an 'option' to have interest paid away.

bristolleedsfan

masonic said:

I think we've established elsewhere that savings providers are required to report interest credited within a tax year, even if it doesn't arise for tax during the tax year in question. But that they expect the taxpayer to inform them of any difference. The only question is under what circumstances an error would be identified.

I haven't seen the issue of what HMRC expects of those not on SA raised in their forums, but there is a general expectation to declare income arising from sources that don't report (correctly) to HMRC.

First paragraph taken from link posted earlier on thread.

"UK banks/building societies are obliged to report interest annually to HMRC so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

masonic

bristolleedsfan said:

masonic said:

I think we've established elsewhere that savings providers are required to report interest credited within a tax year, even if it doesn't arise for tax during the tax year in question. But that they expect the taxpayer to inform them of any difference. The only question is under what circumstances an error would be identified.

I haven't seen the issue of what HMRC expects of those not on SA raised in their forums, but there is a general expectation to declare income arising from sources that don't report (correctly) to HMRC.

First paragraph taken from link posted earlier on thread.

"UK banks/building societies are obliged to report interest annually to HMRC so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

Thanks, although I think, like many of the responses from HMRC Admins, this one misses the point that UK banks/building societies are obliged to report all interest credited, not just accessible interest, so what they report can be different from what should be taxable. This was raised in a couple of places in the long thread, but not adequately answered.

So for the mentioned fixed rate bond that you cannot access the interest until maturity, it must be reported annually if credited to the account, but should be treated as taxable at maturity. HMRC have no means to determine this from the banks' annual returns.

bristolleedsfan

masonic said:

bristolleedsfan said:

masonic said:

I think we've established elsewhere that savings providers are required to report interest credited within a tax year, even if it doesn't arise for tax during the tax year in question. But that they expect the taxpayer to inform them of any difference. The only question is under what circumstances an error would be identified.

I haven't seen the issue of what HMRC expects of those not on SA raised in their forums, but there is a general expectation to declare income arising from sources that don't report (correctly) to HMRC.

First paragraph taken from link posted earlier on thread.

"UK banks/building societies are obliged to report interest annually to HMRC so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

Thanks, although I think, like many of the responses from HMRC Admins, this one misses the point that UK banks/building societies are obliged to report all interest credited, not just accessible interest, so what they report can be different from what should be taxable. This was raised in a couple of places in the long thread, but not adequately answered.

So for the mentioned fixed rate bond that you cannot access the interest until maturity, it must be reported annually if credited to the account, but should be treated as taxable at maturity. HMRC have no means to determine this from the banks' annual returns.

This is key point for most savers  "so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

Bigwheels1111

You could self report your interest.
I need to file a return, but if I did not I think I would update them to save any future issues.
I made sure my 5 year fixed were paid away.