Tax on Savings Interest in Unusual Circumstances

ksg1981

As an update, it’s possible that I may not actually end up owing tax from this year’s interest. Thanks to this comment:

masonic said:

You have the option to make a payment to cover the tax owed.

If you hold fixed term accounts, and some of these extend into the next tax year, have interest credited to the account, and do not permit early withdrawals, then it would be worth noting that interest on such accounts does not arise for tax until maturity. This could reduce the amount of tax you would need to pay.

Having checked my fixed rate bonds outside of ISAs, none of them allow any early withdrawals, and so the interest that was paid into them this year (at least, the ones that didn’t mature this year) doesn’t get counted for tax purposes until the bonds mature (if I’ve understood everything right).

Thanks for the responses everyone. I find tax on savings interest very confusing (was a while before I learnt about the starting rate for low earners), but I’ll get there eventually! And I suppose, if in doubt, wait and see what HMRC say…

Dazed_and_C0nfused

ksg1981 said:

As an update, it’s possible that I may not actually end up owing tax from this year’s interest. Thanks to this comment:

masonic said:

You have the option to make a payment to cover the tax owed.

If you hold fixed term accounts, and some of these extend into the next tax year, have interest credited to the account, and do not permit early withdrawals, then it would be worth noting that interest on such accounts does not arise for tax until maturity. This could reduce the amount of tax you would need to pay.

Having checked my fixed rate bonds outside of ISAs, none of them allow any early withdrawals, and so the interest that was paid into them this year (at least, the ones that didn’t mature this year) doesn’t get counted for tax purposes until the bonds mature (if I’ve understood everything right).

Thanks for the responses everyone. I find tax on savings interest very confusing (was a while before I learnt about the starting rate for low earners), but I’ll get there eventually! And I suppose, if in doubt, wait and see what HMRC say…

I think you'll find HMRC calculate any tax due based on what the banks report in their annual return.

https://www.gov.uk/guidance/bank-and-building-society-interest-returns#full-publication-update-history

masonic

ksg1981 said:

As an update, it’s possible that I may not actually end up owing tax from this year’s interest. Thanks to this comment:

masonic said:

You have the option to make a payment to cover the tax owed.

If you hold fixed term accounts, and some of these extend into the next tax year, have interest credited to the account, and do not permit early withdrawals, then it would be worth noting that interest on such accounts does not arise for tax until maturity. This could reduce the amount of tax you would need to pay.

Having checked my fixed rate bonds outside of ISAs, none of them allow any early withdrawals, and so the interest that was paid into them this year (at least, the ones that didn’t mature this year) doesn’t get counted for tax purposes until the bonds mature (if I’ve understood everything right).

Thanks for the responses everyone. I find tax on savings interest very confusing (was a while before I learnt about the starting rate for low earners), but I’ll get there eventually! And I suppose, if in doubt, wait and see what HMRC say…

It is a great result that you have achieved this unintentionally!

It's worth retaining a copy of the T&C for relevant accounts. Someone mentioned earlier this year that HMRC asked them to provide evidence that the interest that was credited couldn't be accessed until maturity. They will assume unless told otherwise that the interest was accessible (banks do not inform HMRC of this).

Sarahspangles

For most people with smaller savings, it’s helpful that longer term bonds (e.g. three year) are treated as if the interest is received annually. It means there isn’t a year where most or all of the personal savings allowance is used up by the bond interest, implying that interest from other savings is taxed, for that year only.