You’re offline. This is a read only version of the page.
Thank you for the response. This is interesting because it contradicts the information provided by NS&I in respect of its Guaranteed Growth Bonds ("GGB's") and its Green Bonds. The terms and conditions of both of these products preclude any withdrawals until maturity. The interest is, however, credited and compounded annually. NS&I's published advice is that the interest paid for the entire term will be taxable in the tax year of maturity. Indeed, there was some publicity about this when NS&I altered the terms of their GGB's to preclude withdrawals. There were newspaper articles warning people that the upshot of this was that interest that had previously been assessable annually would now be aggregated and assessed in the year of maturity.
I appreciate that my query did not concern NS&I accounts but your reply, if correct, means that the advice being provided by them is incorrect and will result in many people under-declaring their interest for years prior to the maturity of the product. Here's an extract from the "Key Features" of the GGB:
"The investment’s key features
• The Bond is designed to be held for the whole term. You can’t cash
it in before the end of the term.
• Interest added to your Bond once a year.
• Interest is taxable in the tax year that your Bond matures. "
The footnote to example 2 at SAIM2440 states: "If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point." This again contradicts what you've told me.
Are you sure the advice you have given me is in accordance with HMRC's understanding of the law? Is there anyone I could write or speak to for a definitive view of this?
I have read conflicting views on the taxation of interest paid on fixed-term bonds - and am aware of the guidance at SAIM2440. Most bonds credit interest annually and, in many cases, the bond-holder cannot access the funds until maturity, except in exceptional circumstances. In such a case, the interest is apparently taxable in the year of maturity. (See, for example, the NS&I guidance on Guaranteed Growth Bonds.) There is, however, often the option to have the interest paid to another account, in which case it would be taxable when received.
What is the position if the terms of a bond give the option of payment to another account but the bond holder elects from the outset to have the interest retained and compounded within the bond? Is the interest all taxable in the year of maturity or does the existence of this option mean that the holder is taxable on the interest in the year it is credited because it was his choice not to have it paid out?