In short, it may be taxable, however there’s much more to It than that.
When completing self-assessment tax returns, I often get asked by clients if they really need to find all their bank interest payments for me, especially when it’s only a few pence a month.
You may not know that the banks and building societies already give details of interest payments to HMRC. It’s a complicated and manual process to match it to your tax account, but once HMRC do they are expecting you to tell them about the bank interest payments. If you don’t, you have made an error or been dishonest on your tax return and it could flag you for investigation. Put yourself if their shoes… if you can get it wrong about a few pounds of interest, what else could you not be telling them?
Most people get some kind of allowance that makes their interest on earnings tax free:
Only Additional Rate taxpayers (those with over £150,000* of income) are not eligible for a savings allowance.
As well as the allowances, some accounts are tax free such as Individual Savings Accounts (ISAs), some National Savings and Investments (NS&i) and the government Help To Save scheme to name a few. You don’t declare this interest on your self-assessment tax return.
The interest on some accounts is taxed at source, meaning you have already paid tax on the interest you received. If this is the case and you were entitled to tax-free savings under one of the rates or allowances, you can reclaim tax paid on your savings interest. You will get the tax back as part of the tax calculation and if HMRC end up owing you, you can get a rebate.
Not necessarily, most banks and building societies provide an Annual Interest Summary. This could be:
If you have a joint account, interest will be split equally between the account holders
We have mainly talked about bank and building society accounts but interest on the following is also taxable:
* Though figures were correct at the time of publishing these rates change each tax year. Please see the latest rates on the gov.uk website.
Reference: Tax on savings interest (GOV.UK)