Help on "Interest is counted in the tax year you can access it"!

hkareno

Hi I hope someone can help me out on personal tax matter. 

I got a 60 day notice account and interest paid monthly. My understand is interest is counted in the tax year you can access it. My question is do interests paid on 1st Mar and 1st Apr 2025 count into 2024-25 financial year as the account requires 60 days notice to withdraw ie after 60 days notice it is 2025-26 year. 

Thanks a lot       

refluxer

I see where you're coming from (due to the similarity with similar scenarios with fixed rate savings accounts where credited interest can't actually be accessed) but I would imagine that interest credited to a notice account will be counted for tax purposes on the date it was credited, regardless of the notice period.

The bank or building society will be reporting the two interest payments you mentioned to HMRC for the 2024-25 tax year, for sure.

MyRealNameToo

hkareno said:

Hi I hope someone can help me out on personal tax matter. 

I got a 60 day notice account and interest paid monthly. My understand is interest is counted in the tax year you can access it. My question is do interests paid on 1st Mar and 1st Apr 2025 count into 2024-25 financial year as the account requires 60 days notice to withdraw ie after 60 days notice it is 2025-26 year. 

Thanks a lot       

Never seen a 60 day notice account where you cannot access it sooner via paying penalties. 

It will count for HMRC, the guidance is in relation to annual interest accounts where in theory there is an accrual for the interest to be paid on the anniversary of the account but you dont get taxed on the accrual and instead will be taxed on the full amount once paid over next financial year. 

Kim_13

refluxer said:

I see where you're coming from (due to the similarity with similar scenarios with fixed rate savings accounts where credited interest can't actually be accessed) but I would imagine that interest credited to a notice account will be counted for tax purposes on the date it was credited, regardless of the notice period.

The bank or building society will be reporting the two interest payments you mentioned to HMRC for the 2024-25 tax year, for sure.

This. Anyone wanting the interest out on the day it is credited could surely work out how much it will be, then count back 60 days from 1 March and 1 April and put in the notices at the right time. Then it is accessible on the day it is credited. 

I believe HMRC have taken the line with multi year fixes that if interest could have been paid away, then it is accessible - as it is a choice by the taxpayer rather than the provider that has caused it not to be. That would be the same principle as expecting the taxpayer to put in the notice if they were relying on accessing interest to pay the tax.

masonic

Kim_13 said:

I believe HMRC have taken the line with multi year fixes that if interest could have been paid away, then it is accessible - as it is a choice by the taxpayer rather than the provider that has caused it not to be. That would be the same principle as expecting the taxpayer to put in the notice if they were relying on accessing interest to pay the tax.

No, they haven't. If you choose a product version at application whose terms require compounding, even if you have the choice of a version that pays away, you are bound by the terms of the product actually offered after you apply.

If the contract you agree has provisions for access, with or without a penalty, whether or not you do, then it is accessible.

Unless you complete a tax return, you should be prepared to provide evidence you could not access the interest according to the product terms.

NorthYorkie

You asked " My question is do interests paid on 1st Mar and 1st Apr 2025 count into 2024-25 financial year as the account requires 60 days notice to withdraw ie after 60 days notice it is 2025-26 year." 

The interest credited to your account on 1 March and 1 April 2015 is taxable for 2024-25. The 60 day notice period is irrelevant, you can withdraw those amounts at any time  subject to giving the required notice or suffering the required penalty. If you think about it why should you be able to delay the tax liability on interest by simply leaving it in the account (and allowing it to compound)?

eschaton

It counts when it’s credited to your account whether or not you can access it. 

I recently opened a 12m ATOM FS. I took the annual interest option to put the interest into next year. If I took the monthly option then all interest up to April would have been paid this tax year. I’d only take monthly interest if it was over 2/3/5 years to prevent a bigger hit on maturity. Unless you had spare allowance in the current tax year then I’d go monthly as I like seeing the money in my account each month. 

EthicsGradient

Kim_13 said:

refluxer said:

I see where you're coming from (due to the similarity with similar scenarios with fixed rate savings accounts where credited interest can't actually be accessed) but I would imagine that interest credited to a notice account will be counted for tax purposes on the date it was credited, regardless of the notice period.

The bank or building society will be reporting the two interest payments you mentioned to HMRC for the 2024-25 tax year, for sure.

This. Anyone wanting the interest out on the day it is credited could surely work out how much it will be, then count back 60 days from 1 March and 1 April and put in the notices at the right time. Then it is accessible on the day it is credited. 

I believe HMRC have taken the line with multi year fixes that if interest could have been paid away, then it is accessible - as it is a choice by the taxpayer rather than the provider that has caused it not to be. That would be the same principle as expecting the taxpayer to put in the notice if they were relying on accessing interest to pay the tax.

As well as working out what the interest would be when credited, you would also have the option of closing the account completely between 1st March and 5th April, so the interest would certainly be "accessible", without you having to specify how much you think will be added.

masonic

eschaton said:

It counts when it’s credited to your account whether or not you can access it. 

No, that is not correct. See the last paragraph of example 2 at https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440

There is further information at https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2400

eschaton said:

I recently opened a 12m ATOM FS. I took the annual interest option to put the interest into next year. If I took the monthly option then all interest up to April would have been paid this tax year. I’d only take monthly interest if it was over 2/3/5 years to prevent a bigger hit on maturity. Unless you had spare allowance in the current tax year then I’d go monthly as I like seeing the money in my account each month. 

Assuming the interest credited to the 12m Atom FS cannot be accessed until maturity and both options have the same AER, then there is no difference in the tax liability of the two options. Where there is a difference is that HMRC will assume the interest is accessible, and this may result in an over- or under-payment of tax for the monthly option if you do not complete a tax return or otherwise inform HMRC of the correct figure arising for tax.

Money_Grabber13579

I feel like the short answer is that no one really knows and so it is taxable when the bank tells HMRC about it. There is probably no consistency across banks in terms of when that happens and from my perspective, I’ve reported interest when credited, thinking that HMRC are unlikely to care that much as otherwise, they would have clarified the situation.

masonic

Money_Grabber13579 said:

I feel like the short answer is that no one really knows and so it is taxable when the bank tells HMRC about it. There is probably no consistency across banks in terms of when that happens and from my perspective, I’ve reported interest when credited, thinking that HMRC are unlikely to care that much as otherwise, they would have clarified the situation.

There is a requirement on banks and building societies to report all interest credited for the tax year it is credited, whether it arises for tax in the same year or not. Historically, NI numbers were not collected by banks unless you were applying for an ISA, so not all of the information HMRC receives is directly attributable to a unique taxpayer. Then there are aggregators that are not themselves banks or building societies and fall outside of the legislation, and the likes of NS&I that have a unique status.

It is clear enough what year interest should be taxed based on the terms of the savings product. However, HMRC doesn't usually get to know about this unless they are told by the saver.