Interest Tax Year

I am confused when I have to declare the interest I earned in a year.

So, if I have a bond fixed for 1 year, all works fine as I declare the interest in the tax year the bond matures.

But if the bond goes for 2 years? When do I have to declare the interests?

It is very confusing and I do not want to end up paying taxes when I should not.

Any help?

I would think it’s only declared once it’s paid to you. If the interest isn’t paid to you until the end of year 2, then there’s nothing to declare at the end of year 1.

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Thanks a lot Dan.

I thought so too, however, some bonds are very unclear. For instance, I’ve got a monthly paid bond, but fixed for a year, and althoug it runs over two different tax years I have to declare the interest in the year the bond matures.

On the other hand, I have a very similar bond in a different bank and they made crystal clear that the interest are paid monthly so I have to make the counts per month and add them to the tax year that they belong.

The funny thing is that I found out the above after signing for the bonds as no one clearly stated how to treat the interest before hand.

Thanks!

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As far as I know the rule is count it when it’s paid, I’d double check with HMRC about the former one you mentioned “fixed for a year and paid monthly”. Off the top of my head I’d expect you to pay tax on the bond income within its respective tax year (that you received it)

Obviously not tax advice, that’s what professionals are for (and HMRC)

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In my experience, HMRC include taxable interest and dividend income in the following year’s tax code calculation.

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What are you basing this on?

Similar to what others have said, my understanding is you should calculate your tax liability for a given year based on the interest you receive within that year. If you are receiving monthly interest payouts I don’t think it matters if it’s coming from a bond which doesn’t mature until a future tax year.

Of course, if it’s a bond where you don’t receive the interest until the bond matures, then it’s different and you wouldn’t include in your liability calculation until the tax year in which you actually receive the interest.

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Hi,

My comments are based on the tax certificates each bank issued to me for the past tax year (2021/22).

It did not matter at all as I was not reaching the £1000 threshold but it made me wonder how it actually works.

As I said, banks take two approaches and, from my point of view, are unclear.

The situation is as follows: Two different banks, two 1 year fixed bonds, both of them pay montly, both of them ran through 2 different tax years. Once I received the year tax certificate, each bank did the following:

Bank 1: Interest for tax year 20/21 - Interest x 9 months ; Interest for tax year 21/22 - Interest x 3 months

Bank 2: All the interest for tax year 21/22.

And the above is what really confuses me. In any case I had access to the interest until the bonds did mature.

It’s really quite straightforward: your savings provider should provide you with a statement of interest earned in the tax year. That’s the figure you provide to HMRC

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This sentence is a bit confusing. Could you re-phrase?

By the way, I forgot to mention in earlier post, HMRC have a helpline you can use to ask questions about tax on savings interest

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Yes, and I found the CS agent really helpful (and patient :blush:).

Sorry, I meant “In any case I did not have access to the interest until the bonds did mature”. My brain going faster than my hands.

I believe it is time to contact HMRC.

Thanks to everybody.

Ps: I did not see the button to quote your answer. My apologies.

Just checked my HMRC account and found that they were ready to refund me the additional tax I paid on my interest in 2021-22, after they had based my liability on 20-21 earnings.

21-22 were < £1,000

22-23 will be > £1,000, so it will be back to having tax code messed with again next year.

So….

22/23 was the first time I was required to complete a SA form.

On a related point, I noticed that financial institutions report to HMRC, interest they pay their account holders.

Do we need to do that as well, even where the interest received falls below the threshold for tax?

If you need to fill in a self assessment tax return, you need to include any interest and/or dividends received

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Thank you.

Would just recommend getting an accountant to do it for you depending on the reason you need to do one

My needs are simple - small beer. It’s just for self-assessment.

Yeah, I had to do one last year, it was made pretty complex by CGT (they need a record of all transactions). This year just gone I need to tell HMRC that I don’t need to send one.

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If they ask for one, you still need to send it - unless they formally cancel the request.

Otherwise, you get a penalty for not filling - even if no tax is due.

That’s going to be fun, hopefully I can just file it easily this year. I don’t have any income etc

Edit: in the scope of taxation