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

Dazed_and_C0nfused

slinger2 said:

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).

I think you're a bit optimistic there given the institutions had until 30 June to report the details to HMRC!

slinger2

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

masonic

slinger2 said:

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

Unless I'm mistaken, that doesn't permit access to interest payments credited to the fixed account, so any that are credited to that account would be taxable at maturity.

slinger2

masonic said:

slinger2 said:

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

Unless I'm mistaken, that doesn't permit access to interest payments credited to the fixed account, so any that are credited to that account would be taxable at maturity.

I've got no idea of the legal situation, but after 1 year I'm choosing whether the interest is added to the account or paid away. Seems a bit disingenuous for me to claim that the interest is not accessible when it's not accessible because of an action (or lack of it) on my part.

nottsphil

slinger2 said:

masonic said:

slinger2 said:

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

Unless I'm mistaken, that doesn't permit access to interest payments credited to the fixed account, so any that are credited to that account would be taxable at maturity.

I've got no idea of the legal situation, but after 1 year I'm choosing whether the interest is added to the account or paid away. Seems a bit disingenuous for me to claim that the interest is not accessible when it's not accessible because of an action (or lack of it) on my part.

I'm not convinced about that. You're choosing the option of having your interest inaccessible until maturity. 

(maybe pause a while here and reread my last sentence).

If you still don't get what I'm thinking, then just suppose the provider offered two different versions of this account - one with annual interest paid away and one with interest only compounded at maturity. If you chose the latter version, how could anybody argue that the interest should still be taxed annually because you could have chosen the former?

slinger2

nottsphil said:

slinger2 said:

masonic said:

slinger2 said:

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

Unless I'm mistaken, that doesn't permit access to interest payments credited to the fixed account, so any that are credited to that account would be taxable at maturity.

I've got no idea of the legal situation, but after 1 year I'm choosing whether the interest is added to the account or paid away. Seems a bit disingenuous for me to claim that the interest is not accessible when it's not accessible because of an action (or lack of it) on my part.

I don't know about that. You're choosing the option of not having your interest accessible until maturity. 

(maybe pause a while here and reread that last sentence).

If you still don't get what I'm thinking, then just suppose the provider offered two different versions of this account - one with annual interest paid away and one with interest only compounded at maturity. If you chose the latter version, how could anybody argue that the interest should still be taxed annually because you could have chosen the former?

I see your point, but in my specific RCI case I initially chose to have the annual interest credited to the account (all interest at maturity was not an option AFAIR) but now, 11 months in, I still have the option of changing that, so that the interest is paid away. OK, If that option was not available to me then it could be argued that the interest is not available until maturity.

TojoRalph

masonic said:

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.

It's as you describe. The fixed rate investment period was 12 month and I agreed to have the funds plus the interest reinvested when the 12 months was up and the account matured. Whilst the account number remains unchanged, there is a new term of 12 months and a new fixed rate. Thanks.

masonic

slinger2 said:

masonic said:

slinger2 said:

EthicsGradient said:

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.

However, if the interest is retained in the account but you've got an option to pay it to a current account, then you've chosen that it's retained; the interest is accessible if you want it. I'm nearly a year into a 3 year fix with RCI and it's still letting me change the "Interest Instruction" to have it paid into my linked account.

Unless I'm mistaken, that doesn't permit access to interest payments credited to the fixed account, so any that are credited to that account would be taxable at maturity.

I've got no idea of the legal situation, but after 1 year I'm choosing whether the interest is added to the account or paid away. Seems a bit disingenuous for me to claim that the interest is not accessible when it's not accessible because of an action (or lack of it) on my part.

This exact scenario was put to the HMRC Admins in the long running thread over in their forum and the answer was that the terms in force at when the interest is credited dictate the tax situation. If the interest is credited to the fixed account and you cannot withdraw it from the fixed account until the end of the fixed period, then it is at that point it arises for tax. I am presuming, seeing the interest credited, if you quickly phoned the provider and asked for it to be paid out, they'd say no.

Everyone opening a fixed account with capitalised interest voluntarily foregoes access because of an action on their part, as they could have chosen an easy access account instead.

TojoRalph

slinger2 said:

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).

I do not currently need to do Self Assessment, I am just trying to get my house in order and make sure I have this information available. My current and forecast future sole source of income is interest on savings account, however it is somewhat below the £17570 limit before tax. I am therefore wondering if I should draw down the difference from a pension, hence getting house in order. The thing stopping me doing that is that I don't need it. With regards to accepting what HMRC says, is that information readily available from HMRC? Whilst I appreciate that the HMRC will have the details of the total of interest paid to an individual as reported to them by the financial institutions, I was not aware that it could be accessed or requested? Thanks.

Dazed_and_C0nfused

TojoRalph said:

slinger2 said:

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).

I do not currently need to do Self Assessment, I am just trying to get my house in order and make sure I have this information available. My current and forecast future sole source of income is interest on savings account, however it is somewhat below the £17570 limit before tax. I am therefore wondering if I should draw down the difference from a pension, hence getting house in order. The thing stopping me doing that is that I don't need it. With regards to accepting what HMRC says, is that information readily available from HMRC? Whilst I appreciate that the HMRC will have the details of the total of interest paid to an individual as reported to them by the financial institutions, I was not aware that it could be accessed or requested? Thanks.

If they don't need to issue a P800 or PA302 calculation then you won't get anything with the details on.

If you want a breakdown at individual account level you just need to ask for it.  Although it's a bit early I suspect for 2023-24 given institutions had until 30 June to send the details to HMRC in the first place.