Changing reporting of interest

OscarJack15

Are there any rules (or even red flags) if i chose to change how I report interest from savings on my SA.

Using the proceeds from a house sale, i took out 1,2,3 4,&5 years fixed rate savings accounts 3 year's ago, each with £20k, with the intention to open cash isas when each matured.

I have been reporting all interest in the year each account matured. Whilst i had the benefit of delaying paying tax (and earning interest on that) my tax is increased each year, and i lll have to report all of the interest on the 3 year account on next sa.

With the additional 4% coming in from 2027, would i be able to declare all of the interest received so far on the 4 and 5 year accounts, and only pay 40%?

Even if possible, from a cashlow point of view i might be better of just keeping as is and accepting the increased rate on prior years.

Woodstok2000

I don't think you get to choose when the interest becomes 'taxable'. It should only be reported in the year it's made available to you.

DRS1

I won't be much help on the basic question but a couple of thoughts

If you change to annual reporting won't that mean you have to go back and change the tax returns for years 1 and 2 as well. Are you still in time to amend the return for year 1? And would there interest to pay on the late tax?

Presumably you looked at the terms of the bonds when deciding they gave you interest which was only taxable on maturity. Do those terms allow you to change your view? If the bonds are from NS&I for example they seem very clear that you are taxed on all the interest at maturity so you may not be able to change your treatment of the interest - or at least will get into a "discussion" with HMRC when NS&I report all the interest in year 3, 4 or 5.

It is unlikely but can you close the bonds early - eg before April 2027 and so trigger the interest in 26/7?

TidyLedgerUK

Unfortunately it isn't a choice. The timing comes from each account's terms. HMRC's rule is that interest is taxable when it "arises", meaning when it's paid or credited somewhere you're free to draw on it. Their manual has an example very close to yours, at SAIM2440.

If a bond credits interest each year and you could get at it, even only by paying an early-access penalty or because it's paid out to another account, it's taxable each year as it's credited. If the terms don't allow any access until maturity, all of it is taxable in the year it matures, at that year's rates. You can't declare it earlier just because it would suit you.

So check the original terms of the 4- and 5-year accounts. If they really are "no access until maturity", you've been reporting correctly and the interest falls in the maturity years. If an account did allow access or paid interest out annually, the earlier years should have included that interest. Then you'd amend those returns (possible up to 12 months after the 31 January deadline) or tell HMRC about older years, and there may be a little interest on the late tax.

Banks sometimes report the yearly figure to HMRC anyway, so check whether your personal tax account shows amounts that don't match what you've declared.