When to declare savings interest

[BlueHotel]

I have several savings accounts (and an ISA) and I know I get more than £1000 in interest per tax year. I am not good at all with numbers and I have an accountant but I still have to inform him of interest payments.

One of my accounts is a 90 day interest account. Interest was paid during the 22/23 tax year but I haven't withdrawn anything. Do I declare this interest now or wait until I close the account?

You don’t need to declare interest, your tax code for next year will be altered and reduced to account for the money owed automatically.

Tax is payable on the interest in the tax year you receive it. It doesn't matter whether you withdraw it or not.

Thank you @SummerWillow. It's obvious really, but I just needed the reassurance.

Thank you also for responding @Tearsofthemushroom but I do know that banks now all pay interest gross and it's up to you to declare it. Maybe it's different with PAYE? But I'm retired.

Just adding my agreement that the interest is earned in the year it gets deposited into your account, whether or not you close it/take it out.

And agreeing with you that yes indeed you do need to notify HMRC/declare it on your tax return if you earn more than £1000 or £500 depending on which tax band you're in.

Remember your ISA doesn't count towards your interest earnings as they are tax free.

PP are correct though, interest should be reported based on when the bank pays it to you, not when you close a bank account down.

You may be able to ask the bank to start deducting tax from the interest it pays you. At least that way if you pay too much you'll get a refund, but it may limit the amount you have to pay HMRC at the end of the year.

Generally, yes, interest is taxable in the tax year in which it's added to your added, whether you withdraw it or not.

However there is an exception in that if the rules of the account state you can't withdraw it until the end of the term, i.e. a 3 or 5 year fixed account, then interest is taxed in the tax year of the end of the term, when you are free to withdraw it. Even if it's added to the account in years 1,2,3,4 then it's not taxable in those tax years if you aren't allowed to withdraw it and the interest must be retained within the account until the end of the fixed term.

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688#:~:text=If%20you%20have%20access%20to,Thank%20you.

@@Tearsofthemushroom you have literally made that up. Op ignore. It’s receipts basis. ISA exempt. You say re 1000 that is if basic rate. If your savings income falls into 1st 5000 taxable income so after pension then there is potentially another 5000 at 0%.

As well as the Personal Savings Allowance of £1000/£500/£0 (depending on which tax band you're in), there's also the starting rate for savings if your other income is less than £17,570. It's up to £5,000 but reduces pound for pound as your income gets closer to £17,570. But I don't know if tax-free accounts like ISAs are included in that - obviously you wouldn't pay tax on ISA interest, but if you have a combination of ISA and non-ISA interest, does the savings limit apply to all of it or just the potentially-taxable interest income?.

If you get more than £10,000 from savings and investments, you need to register for Self Assessment. Again, it doesn't say whether that's all savings (including tax-free ISAs) or just taxable savings.

https://www.gov.uk/apply-tax-free-interest-on-savings

No ISA is not included as exempt

https://www.gov.uk/apply-tax-free-interest-on-savings this indicates @Tearsofthemushroom is correct.

As an aside, OP can use their ISA allowance each tax year to move £20k from general account to ISA, reducing future tax payable on interest.

Thanks for all further replies, at least it makes me feel less stupid for asking the question. Now I'm clear about the difference between fixed rate accounts when the tax is declared at the end of the term, and notice accounts where I should declare the tax in the tax year it's received. ISAs and premium bonds not taxed.