The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
Interest can best be thought of as compensation for the use (or retention) by one person of a sum of money which belongs to another. Therefore, in order for a payment to be interest, there must be a principal sum on which the interest is calculated and both amounts (the principal and the interest) must be due to the same person.
See Simon’s Taxes E1.405 (subscription sensitive).
The most common forms of interest are the amounts paid by banks or building societies on deposits, although interest may also be paid by companies on amounts loaned by the person. The interest is either paid gross (no tax deducted) or net (after tax has been deducted) and the amounts are reported in different boxes on the Tax Return (see below).
Irrespective of whether a person receives the interest gross or net of tax, it is the gross amount that is used to calculate the tax due. After the overall tax liability has been calculated, any tax already collected by the bank / building society will be deducted from the liability. For more on this, see the Taxation of savings income guidance note.
It is the amount of interest that arises to the taxpayer in the tax year that is reported on his Tax Return. This is known as the receipts basis of assessment or the arising basis of assessment. For example, interest credited into the account on 6 April 2018 is not taxable in the 2017/18 tax year, as it is received in 2018/19, despite the fact that it accrued in 2017/18.
From 6 April 2016 deposit-takers, such as banks and building societies, no longer have to collect basic rate
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