Personal Savings Allowance

Mortimer123

I have just found out from HMRC that unfortunately the Personal Savings Allowance of £1000 per year is only applied in the year an investment bond matures, so for  2 /3/4/5 etc year bonds only 1 allowance.  This seems unfair as 5 one year investments would qualify 5 times where a 5 year fixed rate deal only qualifies once.  I appreciate moving to ISA's yearly will over time alleviate this problem, however I believe it would be fair to apply the PSA for each year of the term.  Unlike the Personal Allowance, if you are unemployed  during the year I appreciate you can't carry that forward,  but as the money is there and earning interest  it seems unfair the PSA does not apply.  Anyone who inherits, as I did, and has used the ISA allowance for the year just needs to be aware of the tax potential before committing to 2 Years and beyond.

eskbanker

Mortimer123 said:

I have just found out from HMRC that unfortunately the Personal Savings Allowance of £1000 per year is only applied in the year an investment bond matures, so for  2 /3/4/5 etc year bonds only 1 allowance.

Are you actually referring to 'investment bonds' or just 'fixed term savings accounts'?

The principle for the latter is that interest is deemed taxable when it arises, so multi-year accounts where it's only added at maturity definitely aren't tax-advantageous, but even when it's added to the account annually, the treatment seems to vary according to when the provider chooses to notify HMRC.

The topic comes up fairly often on here, in threads such as:

https://forums.moneysavingexpert.com/discussion/6475864/tax-on-5-year-fixed-rate-bonds

Albermarle

As above.
Official HMRC policy is that tax is payable when the interest is first accessible, so in your case after 5 years.
However most providers seem to add and report the interest to HMRC annually, and it is taxed like that.

km1500

one way round it for future reference is if possible have your interest paid annually to an external account

Ocelot

HMRC always taxes me every year on fixed rate bonds, even though I don't have access to the interest.

Bigwheels1111

I personally file a self assessment return.
I report the interest, if I’m wrong it only on around £250, all my other fixed rates pay away annually to solve this issue.