Reporting of interest income from fixed term deposit

I have a few short term fixed deposits each of which lied across the 2 tax year. In respect of each fixed deposit, should I report the total amount of the interest income in the tax year in which I opened the fixed deposit, or in the tax year in which it matured, or apportion the total amount of the interest income by the number of days in each tax year and report the respective amounts in the respective tax year? Thanks.

Hi.

Interest ‘arises’ when it is received or made available to the recipient. Interest has been 'made available' if it is credited to an account on which the account holder is free to draw.  Please read the guidance at Savings and Investment Manual for further clarification re: declaring the interest arising from your short term fixed deposits seelink below:

Savings and Investment Manual

Thank you.

Can you please clarify this as the guidance is unclear to say the least. For example, if you have a 3 year fixed deposit account where although interest may be compounding monthly/ quarterly but interest is only credited to your account on maturity (which you can then readily access) interest only needs to be declared in the year of maturity. This would also be the case if the terms of the deposit technically allowed you to close the account prematurely at a penalty to any interest accrued as long as you didn't exercise this option. I have spoken to a number of accounting firms who have confirmed this reading. The alternative would be unworkable and very messy as you'd need to calculate pro rata interest earned every tax year given almost all fixed term accounts have terms (quite often in the small print that most dont even know about) that allow premature closure. Can you please confirm the position at the earliest.

Hi Cypher

If the interest is only credited at time of maturity, then you only declare it in that year - the full amount. see guidance at SAIM2440 - Interest: taxation of interest: when interest arises

Thank you

Thank you for your response which is in agreement with my view. Two follow on points to reaffirm my reading: 1. The response indicates that the determining factor for when to declare income is the timing of when interest is "credited" to your account as opposed to whether you could have technically accessed the interest earlier e.g. by prematurely closing the fixed deposit. Therefore, if the bank where the deposit is held doesn't make available any statements to show interest credited for the fixed deposit until maturity there would be no requirement to declare the interest until then. 2. If the available/ requested statement from the bank illustrates the amount of interest compounding but no funds are credited to your account until maturity this also doesn't need to be declared until maturity. Please confirm the above points.

Hi,

That is correct on both points.

Thank you.

what if the bank provides you with an accrued interest statement at the end of each FY, then can you submit accrued interest in your self assessment to even out interest for the duration of the fixed deposit?

Dear HMRC, can you please respond to the above question?

Hi,
Please refer to the link below for guidance.
SAIM4110 - Accrued Income Scheme: calculating accrued income profits and losses
Thank you.