Interest on Savings Account - The Tax Year Interest is Recognised As Being Received

TojoRalph

I am just looking to double check my understanding of the situation in relation to savings account interest and when it is recognised as having been received or paid from a tax year perspective. As I understand things, interest is counted in the tax year that you CAN access the interest, rather than the year that you DO access the interest?

I ask because I have a couple of 12 month fixes that mature tomorrow, one of which I have just set to auto enrol c/w interest into another 12 month fix with the same provider. I am assuming that the interest from the initial 12 month fix counts for this 2024-2025 tax year because I COULD access the interest? With the fact that I chose to not access the interest and instead auto reinvest the money, being completely irrelevant? Thank in advance.

refluxer

Yes, I think your understanding is correct - the interest will be credited tomorrow and would have been potentially accessible to you, so it will fall within the 2024-25 tax year.

400ixl

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

Bobziz

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. If you can't access it then it's not taxable until you can/could.

MK62

Bobziz said:

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. If you can't access it then it's not taxable until you can/could.

True......at least that's my understanding too, but there have been numerous reports of some institutions reporting interest to HMRC incorrectly......which could be significant. No idea if you could argue this with HMRC though......or complain to the institution concerned. 
This is all assuming the above reports sre correct of course.....

nottsphil

Bobziz said:

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. 

How can you access interest that has not been credited, or did you mean by it being paid away instead?

EthicsGradient

nottsphil said:

Bobziz said:

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. 

How can you access interest that has not been credited, or did you mean by it being paid away instead?

Other way round - some accounts credit interest inside an account, but you can't access it. HMRC says if you can't access it, then the tax is not yet due on it. Unfortunately, HMRC also makes providers tell them about all the interest that has been credited, whether or not it's accessible (and with no way for the provider to say it's not accessible, at least in the last format that I saw of what they can tell HMRC). This means HMRC then does not always follow its own rules when assessing the tax for PAYE taxpayers. 

masonic

TojoRalph said:

I am just looking to double check my understanding of the situation in relation to savings account interest and when it is recognised as having been received or paid from a tax year perspective. As I understand things, interest is counted in the tax year that you CAN access the interest, rather than the year that you DO access the interest?

I ask because I have a couple of 12 month fixes that mature tomorrow, one of which I have just set to auto enrol c/w interest into another 12 month fix with the same provider. I am assuming that the interest from the initial 12 month fix counts for this 2024-2025 tax year because I COULD access the interest? With the fact that I chose to not access the interest and instead auto reinvest the money, being completely irrelevant? Thank in advance.

The question you need to ask is: at the moment the interest is credited to the account, when is the earliest you can access the interest that was just credited?

If your account matures, and you have agreed to have the proceeds reinvested into a new fix, then that would be a new agreement under a new set of T&C, and the existing account's terms would not restrict access beyond the date of its maturity.

That said, there was another thread recently about NS&I where the OP was told, or had it implied, that their 3 year fix, that rolled over into another 3 year fix, would have interest taxable at maturity for all 6 years, though I think this was a misunderstanding.

slinger2

For those of us who don't do self assessment, it seems simplest to just accept what HMRC says (I'm still waiting for a 2023/24 number from them).

trickydicky14

Bobziz said:

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. If you can't access it then it's not taxable until you can/could.

So does that mean if I have a 2 year fixed it's not taxable until the end of year 2.

EthicsGradient

trickydicky14 said:

Bobziz said:

400ixl said:

It is the tax year the interest is allocated to you by the provider. You may not necessarily be able to access it at that point, but it has been assigned to your account.

In your example the provider has allocated and you can access it so it is taxable in this financial year.

First paragraph is not quite right, key point is accessibility not whether it's been credited to your account or not. If you can't access it then it's not taxable until you can/could.

So does that mean if I have a 2 year fixed it's not taxable until the end of year 2.

If it's a 2 year fixed account that retains the interest inside the fixed account. If it pays it out to a current account, or easy access savings account, each year (or quarter/month) then the interest is accessible and thus taxed.