NS&I change to interest payments may double my tax bill

National Savings & Investments has waited two years to tell customers of a significant change in interest payments on its guaranteed growth bonds, which could mean I pay tax twice. I received an email at the end of April announcing that interest on two-, three- and five-year bonds, purchased, or renewed, after 1 May 2020, will be applied the year the bond matures, rather than annually as before. Unaware of this, I have carried on declaring interest annually to HM Revenue & Customs since 2019, so may well be double-taxed when my bonds mature.
MO, Stafford

NS&I’s policy change removed customers’ right to cash in its two-, three- and five-year bonds before the end of the fixed term, and those with two-year bonds may only now have realised the impact on their tax liabilities. It’s not just a question of double payments. Interest applied in a lump sum when bonds mature, rather than spread annually, could take some savers over their personal savings allowance and mean they become liable for tax.

A lump sum could also tip some into a higher-income tax bracket, meaning their personal savings allowance would be halved to £500 or, for the highest band, removed, while they would be liable for higher capital gains and dividend tax. NS&I admits the changes were not initially made clear to customers investing or renewing between 1 May and 1 September 2019. It was not until late April this year that it emailed all customers to explain how the tax treatment now worked.

And then it omitted to mention that they could cash in their holding, penalty-free, within 30 days if they objected to the new terms. “We recognise we could have been clearer in explaining the tax treatment for those customers,” it says. “NS&I apologises to any that feel they have invested without having all the relevant information.”

Always check what interest has actually been paid before declaring it to HMRC, which can make adjustments for overpayments.

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