Interest on fixed rated bonds

caj

I’ve just had issues with Nationwide and their handling of tax on my 3 year FRB. They credit the bond annually with the interest for that year, and tell HMRC that i have received this. However i can only access the money on maturity. I have put down the entire 3 year interest payments this tax year, and didn’t realise that id already had the payments included in the last 2 years.

I thought that if you have no access to a bond that the tax on the interest was payable on maturity. I think that this could cause a lot of errors and cause some people to pay tax twice on the same interest payment

eskbanker

There have been plenty of threads on this board about the distinction between tax liability on interest from multi-year accounts and what the institutions report annually to HMRC, but if you've declared three years worth of interest on a single self-assessment (?) when two have already been factored into previous tax liabilities, e.g. via coding adjustments (?) then yes, you'll need to sort that out with HMRC.

DRS1

It is not Nationwide's fault. They just follow the requirement to report interest each year. Plenty of threads on this subject on here. You would need to talk to HMRC about the last 2 years (if you have actually paid any tax on that interest).

badmemory

As far as I know the only bank that does it at the end of the period is NS&I.

refluxer

https://forums.moneysavingexpert.com/discussion/comment/81868261#Comment_81868261

That's worth knowing. I've also discovered recently that Oxbury also don't report interest earned on multi-year fixed rate bonds to HMRC until they mature.

Interest payments for 2+ year bonds are credited annually and show as 'gross interest earned' on their tax year interest statements, but the 'net amount paid' is zero until the tax year they mature.

Albermarle

https://forums.moneysavingexpert.com/discussion/6653583/interest-on-fixed-rated-bonds

In theory if the interest is not accessible until maturity, the interest to be taxed is the whole amount at maturity. This is basically the HMRC rule. However nearly all savings providers add interest annually, and report that to HMRC annually. These reports give no indication what kind of account it is, so HMRC just book them in their system as annual interest. In the case of fixed rate bonds longer than 12 months, they are breaking their own rules, due to the reporting system being inadequate.

It is not a specific issue with Nationwide.

In reality most savers prefer that the interest is potentially liable for tax annually, rather than in a bigger lump sum at the end, so most do not complain ( or are even aware of it) .

caj

yes, I agree that its best to pay the tax each year. However, I’m probably not the only one to assume that I wouldn’t need to report it until the bond finished. Having a low income, it really makes a difference in calculating the starting rate for tax etc. Hope no one else gets caught out by this !

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81868465#Comment_81868465

But have you been taxed on the interest paid in the first two years or not, i.e. did HMRC use the data supplied by Nationwide when calculating your liabilities? When you say "I have put down the entire 3 year interest payments this tax year", where have you put this down?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81868465#Comment_81868465

Are you filling out a self assessment return each year? if not then no need to inform HMRC about savings interest, they will just use what the providers send them each year.

If you are filling out a self assessment return, then that would be relatively unusual if you have a low income, although there could still be a good reason to fill one in.

wmb194

https://forums.moneysavingexpert.com/discussion/6653583/interest-on-fixed-rated-bonds

So you're on Self Assessment and you're going to include the interest for all three years in your return for this tax year (25/26) and haven't included the year one and two interest payments in your previous tax returns? That's fine, HMRC won't care. If it is queried it's easily explained i.e. it was a multi-year fixed rate bond with inaccessible interest.