My retired father has savings which he removed a year ago from a UK bank's cash ISA, and placed into another bank's non-ISA savings account. This was to take advantage of the higher interest rate on offer. Interest earned is added to the account monthly.
Due to the bank's recent interest rate rises, he is surprised to find that he is likely to earn slightly more than the £1,000 tax-free limit in interest this tax year (about £1200 in fact). He is unsure how any tax will be recouped by HMRC.
He has never been asked to do a Self Assessment tax return. He retired aged 69 years, 11 months, and three weeks, from fulltime salaried employment just before the end of the 2021-2022 tax year (31 March). He was already in receipt of State Pension and two very small workplace pensions that started paying when he was 60. His salaried pay tax code was adjusted to allow for the State Pension; this code is now being applied to his main workplace pension. He has never previously earned enough interest in any tax year to trigger taxation of it.
Is the bank operating the savings account obliged to deduct the tax before paying the interest over £1,000 this tax year into his account?
Must he keep a record and submit a form to HMRC? He also receives State Pension which is paid tax-free, and an occupational pension subject to tax. I told him HMRC might adjust the code on this.
I would be grateful for any information on what Dad might expect, as he is fretting about getting a tax bill or being penalised for not notifying HMRC.