Oxbury 5 year bond (is it annual or maturity interest)

Rhcichrrds

I'm deciding on a 5 year bond to invest in and was reading this page:

moneysavingexpert.com/savings/savings-accounts-best-interest/

Under the '5 year fixed rates' saving section it shows Oxbury bank 5 year bond as  paying interest at maturity (bad for tax i guess).

Yet on Oxbury's website:

oxbury.com/savings-accounts/personal-savings/personal-5-year-bond-account-issue-9-445-aer/

It says on their 5 year bond 4.45% webpage:

"Interest is calculated daily and paid into your Personal 5 Year Bond Account (Issue 9) annually, with reference to the date of receipt of your first deposit"

I'm unclear on this, which is correct, is it a mistake on the moneysavingexpert site and the interest is in fact paid annually (probably no tax for me then), not at maturity (I would probably pay tax)?

eskbanker

I think both are right - the interest is paid annually but is only accessible at maturity (i.e. it can't be paid out and has to stay in the account).

masonic

It's best to use moneyfactscompare for more detailed info on products: https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/?quick-links-first=false&product-favorites-first=false&sort-order=AER&sort-order-text=Rate

The Oxbury one credits interest annually, but this is irrelevant for tax purposes as it is not paid away, the account does not permit withdrawals, so it does not arise for tax until maturity.

If you want interest to be taxed annually, then Atom bank offers a 4.4% fix where you can have it paid away and therefore taxable in the tax year it is paid.

Rhcichrrds

As far as tax on the interest goes, would you be taxed on the interest yearly and not at the end of 5 years for the total interest when it matures? 

Probably the most important part to know and I'm not 100% clear of that.

masonic

Interest becomes taxable when it is available for you to withdraw (including where you can withdraw it with a penalty). In the case of the Oxbury fix, that would be at the end of year 5. In the case of the Atom fix (with interest paid to an external account) that would be yearly. For the Atom fix where you choose at the start to have interest compound within the account, it would be at the end of year 5.

Aside from the tax implications of the long fix, have you considered the wisdom of fixing for so long given interest rates are not very predictable?

refluxer

Rhcichrrds said:

As far as tax on the interest goes, would you be taxed on the interest yearly and not at the end of 5 years for the total interest when it matures? 

Probably the most important part to know and I'm not 100% clear of that.

As mentioned above - in theory, according to HMRC, the interest is taxable only when it is accessible (so at maturity if the interest is paid into the same fixed rate account) but, in practice, Oxbury (along with most of the other banks who offer fixed rate accounts and credit interest monthly or annually) report the interest to HMRC after the end of every tax year so if you don't complete a self-assessment every year, I would imagine that HMRC will take the interest into account annually when doing your tax calculations, rather than in one go at maturity.

This aspect of fixed rate accounts has raised a fair amount of discussion on this forum in the past and continues to do so !

What I'm curious to know is... if you complete a self-assessment and banks report the credited (but inaccessible) interest to HMRC annually but you don't (because you want to report it all at maturity as per the rules), are they really going to be happy to disregard what the banks are telling them ?

Rhcichrrds

So I'm more confused now. I don't complete a tax return but it's a bit risky and unclear now not knowing with certainty whether I would be taxed annually or at maturity.
Say 50,000 @ 4.54 after 5 years is £11,350 interest - more with compounding. That would be a lot of tax on interest if classed as one year.

masonic

refluxer said:

What I'm curious to know is... if you complete a self-assessment and banks report the credited (but inaccessible) interest to HMRC annually but you don't (because you want to report it all at maturity as per the rules), are they really going to be happy to disregard what the banks are telling them ?

Well I know that I have declared taxable interest correctly in my previous tax returns respect of fixed accounts I opened before I appreciated this issue, so this will have differed substantially from what the banks have told them was credited. It has never been queried. HMRC must know that BBSI returns are not designed to be used for tax, even if they are unwilling to admit it publicly. Taxable interest is not equivalent to credited interest.

Rhcichrrds said:

So I'm more confused now. I don't complete a tax return but it's a bit risky and unclear now not knowing with certainty whether I would be taxed annually or at maturity.
Say 50,000 @ 4.54 after 5 years is £11,350 interest - more with compounding. That would be a lot of tax on interest if classed as one year.

Yes, there is a risk that at some point HMRC will have the capacity to know that you have underpaid tax by being taxed annually on interest from an account like this. Which is why I stopped opening fixed term accounts with terms greater than 1 year that credit interest annually to the account. It is rather silly that banks credit interest that is inaccessible. They could make things clearer by crediting at maturity when you cannot access until maturity.

Bigwheels1111

To save all these issues I opted for accounts with annual interest to be paid away.
Roll on Sunday & Thursday for my first two payments this year.
Then this money is used with my emergency funds to fund 17 regular savers all paying over 5.5%.
As I get over 10k of interest I need to file a self assessment return, take 15-20 minutes max.

Albermarle

Rhcichrrds said:

So I'm more confused now. I don't complete a tax return but it's a bit risky and unclear now not knowing with certainty whether I would be taxed annually or at maturity.
Say 50,000 @ 4.54 after 5 years is £11,350 interest - more with compounding. That would be a lot of tax on interest if classed as one year.

It is a grey area for sure.
Not helped by the fact that details of savings interest are not visible on your online personal tax account. You have to request the details.
In addition there often seems to be errors in the saving interest recorded.

Obviously if you can save in a cash ISA, then all these issues ( and tax ) disappear.