Taxable interest question

Dvnfermling

I had a 2 year savings bond that accumulated monthly interest. Is this interest spread over the tax years or is it only taxable when the bond matures I have the statements with the interest added in different years.

mebu60

Technically it's only taxable when it's accessible but many organisations (apart from NS&I) report it annually to HMRC regardless. 

Ozzig

You only need to declare the full amount when it matures and you gain access to it.

However, some declare yearly. There are arguments for and against both ways, no one knows what the tax will be in 5 years you could win or lose. 

Many mentions in this HMRC forum thread ...

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688

Albermarle

This is the most recent MSE thread on the subject.
Fixed Bond Interest Tax Bill Despite Interest Not Being "Accessible" — MoneySavingExpert Forum

badmemory

Is the interest going into another account & is therefore accessible monthy.  It should be taxed in the tax year it is accessible.  But as already said NS&I are the only one I have come across that declare it correctly.

Albermarle

badmemory said:

Is the interest going into another account & is therefore accessible monthy.  It should be taxed in the tax year it is accessible.  But as already said NS&I are the only one I have come across that declare it correctly.

The issue seems to be that savings providers  report interest annually to HMRC ( or at least the large majority do ) regardless of the terms of the account. However that interest report does not state whether the interest has been accessible to the client or not. So HMRC just tax it as annual interest regardless.

Ozzig

As mentioned in the linked thread, OakNorth does not show any added interest until maturity, I've used them a couple of times and cannot fault their service.

For the last couple of years, I have uploaded a cover letter to my SA detailing the accounts that have matured, their opened and matured dates, and the total accrued interest. 
I also include easy-access account information.

I think @Albermarle would agree it's probably easier to submit yearly, especially with the mixed answers you get from HMRC chat/telephone/forum. (As long as you have the appropriate funds to pay the tax as you go.) 

spreadsheeterapple

Some comments are suggesting some financial institutions are reporting annual interest on multi-year bonds to HMRC each year and that doing so is earlier than necessary, that they are reporting incorrectly.
- This is probably not the case; whilst any of them can make mistakes, there is probably another reason for reporting, and that is because the interest IS taxable in each year.

Whether interest is withdrawn by you and whether you therefore get your hands on it, or whether you instead leave it in your bond to accrue & compound, does NOT determine whether that interest is taxable.
- instead, interest becomes taxable if you CAN have it out; it is whether it is accessable that determines its taxable status.

It depends on the Terms and Conditions of the savings bond; you need to read the wording carefully.
- for example NS&I state for their 2yr, 3yr, 5yr bonds etc that withdrawing your deposit before end of its term "is not permitted". In that case all the annual interest added to the bond capital each year is only counted as taxable when it is all paid to you in lump sum at the term end date. You are not permitted by the T&C to either make withdrawals or close the bond early, and neither can the interest be paid out to you.
- other bonds from other financial institutions may have different T&C stating that closure is permitted upon loss of a substantial number of days of interest, could be as much as 18 months loss of interest on closing a 5 year bond early for example. Anybody would avoid making such withdrawals due to losing out so much. But it doesn't matter that they choose not to make a withdrawal or closure, it matters that they "are permitted" to do so. In the case of such bonds, where annual interest or monthly interest is added to the account, the annual interest payments ARE counted as taxable each year, and hence are reported to HMRC as taxable interest paid to you each tax year. It is irrelevant that the interest isn't in your pocket and is instead still in the savings account.
- some other financial providers' products are different again, they do not show any added interest at all until maturity. In those cases their T&C states that the full amount of interest is payable only at end of the term, and hence only reportable to HMRC and only taxable at the term end date.

So in answer to the OP's original question, seeing the interest added monthly on the statements doesn't tell you whether it is taxable each time it is shown on the statements; you need to check T&C to see whether withdrawals or early closure 'is not permitted' or 'is permitted upon loss of x amount of interest'.