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If interest from a savings account is paid annually in the middle of a tax-year, should the full amount be reported on the tax-return for the year it is received, or do/can/should you pro-rata the interest for the portion of the tax-year that overlaps the interest-paying year?

Example

In August 2015 you deposit £25,000 in a fixed-term savings account which pays interest annually. The first payment (~£660) will have been in August 2016, in the middle of the 2016/17 tax-year. When making a self-assessment return for 2016/17, should you report the full £660 or the proportion earned during that tax-year (overlap of 4 months; approx £220)?

Note: Assume a higher-rate tax-payer, so a Personal Savings Allowance of £500 (not £1,000) will have applied from April 2016.

Where the savings balance is fixed for a number of years, I suspect the simplest is to report the whole amount, as the overlaps with the tax-years at the beginning and end of the fixed-period will cancel out... if you were to pro-rata it this year, you should presumably back-date the remainder to the previous year's return (and include part of the August 2017 payment in this year's return). However, is this the correct/acceptable way of doing things?

3

I'm not an accountant, but it's when the interest was paid into your account that's matters as it is then income. I.e. if the interest was received during the 2016/2017 tax year then that is when it's liable for income tax in that year.

It's not accounted for pro-rata. So on the 660 income you use the whole of the 500 saving allowance and then the next 160 is at 40% tax.

Welcome to the world of investing, this is how income from dividend and interest payments for peer to peer related investment is handled as well.

  • That's what I suspected, and matches (in most cases) a related question (albeit about the US) to do with invoices raised in one tax-year and paid in the next. – TripeHound Apr 9 '17 at 18:43

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