How to calculate interest earned on savings for SA tax return

BR5500

When declaring interest earned from a building society on a Self-Assessment Tax Return is the required method to calculate the interest manually on a 365 day basis over the tax year or is it a case of declaring when a payment of interest was actually made - for example, an account could have been opened in December 2022 and closed in October 2023 and the full amount of interest earned would be paid on account closure in October 2023 - no physical interest would have been paid on this account in the 22/23 tax year. While this physical interest payment was earned between April 2023 and April 2024, some of this interest was actually earned between December 2022 (when the account was opened) and April 2023, so should the entire payment of interest received in October 2023 (when the account was closed) be declared or should I calculate the interest that was actually earned between December 2022 and April 2023 and deduct this amount from the amount of interest to declare on the 23/24 tax return?

Also, is it possible to ask the building society the amount they declared to HMRC that I earned in interest in the 23/24 tax year? This would be the easiest way if possible as then I'd be sure that the figure HMRC was told by the building society matches the amount I've declared.

My building society accounts have always been instant access accounts so theoretically I've had access to the full amount of interest on any given day if I chose to close the account - the interest would have been paid out on account closure.

I fully understand that interest on something like a 5 year bond with money locked away for 5 years gets declared when paid so the full 5 years interest is declared on one tax year as the money wasn't accessible before (on a side note, if I've understood this correctly, this is surely a potential downside of a long term bond as you'd get hit for tax on 5 years worth of interest in one tax year rather than spreading it across 5 years).

Hope all this makes sense, much appreciate advice in how to declare my instant access account building society interest. It will be under £1000 anyway so not taxable but I don't want to put down a different figure to the figure HMRC are expecting if I've calculated it differently as explained above.

Many thanks in advance.

Dazed_and_C0nfused

Hope all this makes sense, much appreciate advice in how to declare my instant access account building society interest. It will be under £1000 anyway so not taxable but I don't want to put down a different figure to the figure HMRC are expecting if I've calculated it differently as explained above.

Don't know where you've got that impression from but unless it's interest from an ISA it will be taxable 

Depending on your other taxable income it might be taxed at a 0% tax rate but it's still taxable income.

You declare the (taxable non ISA) interest paid in the year.

Ayr_Rage

Every financial institution that pays me interest is able to provide me with a Certificate of Interest for the relevant tax year.

Some have to be requested and others are available online or in their apps, usually no later than the end of June.

I just add up all the interest and put it in the appropriate box on my SA return.

Savvy_Sue

Ayr_Rage said:

Every financial institution that pays me interest is able to provide me with a Certificate of Interest for the relevant tax year.

Some have to be requested and others are available online or in their apps, usually no later than the end of June.

I just add up all the interest and put it in the appropriate box on my SA return.

Me too, the OP's question had my head spinning!

Bookworm105

Dazed_and_C0nfused said:

Hope all this makes sense, much appreciate advice in how to declare my instant access account building society interest. It will be under £1000 anyway so not taxable but I don't want to put down a different figure to the figure HMRC are expecting if I've calculated it differently as explained above.

Don't know where you've got that impression from but unless it's interest from an ISA it will be taxable 

whilst I appreciate you understand the nuance of it being taxable but at 0%,rather than "tax free" / "not taxable", the OP is clearly referring to the personal savings allowance of £1000 (for 20% payer) or reduced to £500 for higher rate taxpayer
Tax on savings interest: How much tax you pay - GOV.UK (www.gov.uk)

Bookworm105

BR5500 said:

When declaring interest earned from a building society on a Self-Assessment Tax Return is the required method to calculate the interest manually on a 365 day basis over the tax year or is it a case of declaring when a payment of interest was actually made - for example, an account could have been opened in December 2022 and closed in October 2023 and the full amount of interest earned would be paid on account closure in October 2023 - no physical interest would have been paid on this account in the 22/23 tax year. While this physical interest payment was earned between April 2023 and April 2024, some of this interest was actually earned between December 2022 (when the account was opened) and April 2023, so should the entire payment of interest received in October 2023 (when the account was closed) be declared or should I calculate the interest that was actually earned between December 2022 and April 2023 and deduct this amount from the amount of interest to declare on the 23/24 tax return?

Also, is it possible to ask the building society the amount they declared to HMRC that I earned in interest in the 23/24 tax year? This would be the easiest way if possible as then I'd be sure that the figure HMRC was told by the building society matches the amount I've declared.

My building society accounts have always been instant access accounts so theoretically I've had access to the full amount of interest on any given day if I chose to close the account - the interest would have been paid out on account closure.

I fully understand that interest on something like a 5 year bond with money locked away for 5 years gets declared when paid so the full 5 years interest is declared on one tax year as the money wasn't accessible before (on a side note, if I've understood this correctly, this is surely a potential downside of a long term bond as you'd get hit for tax on 5 years worth of interest in one tax year rather than spreading it across 5 years).

as you have correctly alluded to. technically savings interest is declared when it "arises" - in simple terms that means when it is credited and freely available to withdraw (even if a notice/penalty period applies). Hence your 5 year fixed term scenario is all in one year

upon closure the interest will credited at that point and that lump sum total may, in time terms, span more than one tax year but would be taxed in the year it was credited and freely available to withdraw. So you get taxed on the whole lot as part of the closing balance payout.

I agree with others you should always get the certificate of interest from your savings institution every year for your own records if nothing else 

read examples:
SAIM2440 - Interest: taxation of interest: when interest arises - HMRC internal manual - GOV.UK (www.gov.uk)

BR5500

Many thanks for the replies, much appreciated. That's correct, I was referring to the PSA of £1000 for lower rate tax payers and £500 for higher rate tax payers. I totally appreciate that all interest (unless from an ISA) has to be declared, even if the total falls below £1000 or £500 in the case of higher rate tax payers.

I really appreciate the advice regarding the interest being declared as it is actually paid. I'll always ensure I obtain certificates of interest in future and file them so that will be the easiest way of declaring the tax on the SA.

Moving forward, this is something I need to carefully consider when opening savings accounts in the future. It might make more sense for me to have the interest paid monthly rather than annually or at the closure of the account. If the interest is paid monthly, that way it is paid as soon as it arises and is free to withdraw each month -  this should ensure the interest shown on the certificate of interest reflects the interest earned in that tax year.

Flugelhorn

The certificate of interest will refer to the tax year - these make SA forms much easier, saves having to work anything out 

Bookworm105

BR5500 said:

Moving forward, this is something I need to carefully consider when opening savings accounts in the future. It might make more sense for me to have the interest paid monthly rather than annually or at the closure of the account. If the interest is paid monthly, that way it is paid as soon as it arises and is free to withdraw each month -  this should ensure the interest shown on the certificate of interest reflects the interest earned in that tax year.

really don't understand what is the point of your concerns. If your personal tax position is so close to the basic and higher rate threshold there are better ways to manage crossing over it than manipulating a few months/years of lump sum interest received to prevent it being taxed at higher rate.

Interest paid monthly normally means a noticeably lower interest rate and poorer investment performance.

Managing your tax threshold by, for example, paying more into a pension would be a better "investment"