Personal Tax

Interest received net or gross

Produced by Tolley
  • 19 Oct 2021 22:40

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Interest received net or gross
  • Interest paid gross or net (2016/17 onwards)
  • Interest paid gross
  • Interest paid net
  • Interest paid gross or net (2015/16 and prior tax years)
  • Interest paid gross
  • Interest paid net
  • Interest on an account beneficially held by a child
  • Planning point
  • Joint accounts
  • More...

Interest received net or gross

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.

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 2020 is not taxable in the 2019/20 tax year, as it is received in 2020/21, despite the fact that it accrued in 2019/20.

Interest paid gross or net (2016/17 onwards)

Interest paid gross

From 6 April 2016 deposit-takers, such as banks and building societies, no longer have to collect basic rate tax at source on savings income. These changes do not affect the requirement to withhold tax on payments of interest from UK companies to individuals.

Where interest is paid gross, the total received in the tax year should be

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