Eligible members of Nationwide Building Society are seeing ‘Big Nationwide Thank You’ payments of £50 drop into their bank accounts. This payment in tax year 2025/26 is in addition to the £100 ‘Fairer Share’ payment made in tax year 2024/25.
Nationwide informs members this will be treated as an interest payment and while Income Tax will not be deducted from the payment, it may still be payable. As taxpayers consider the 2024/25 tax return filing season, it is worthwhile pointing this out. Remember that we are looking at two payments:
1. One in tax year 2024/25; and
2. One in tax year 2025/26 (though consider that another may be payable later on)
HMRC’s guidance is clear that the payments are subject to Income Tax but many taxpayers can earn some interest from their savings without paying tax. This depends on three factors:
The Personal Allowance
All taxpayers receive the Personal Allowance (£12,570 for tax years 2024/25 and 2025/26). Many, but not all, taxpayers will use this to offset the amount of Income Tax payable. If, say, a taxpayer’s earnings are less than the value of the Personal Allowance, the remainder can be used to offset the Income Tax liability from interest payments.
The Starting Rate for Savings
The Finance Act 2024 reduced the Income Tax starting rate for savings income from 10% to 0% and increased the starting rate limit to £5,000. This threshold remains current and is in addition to the Personal Allowance (and Blind Person’s Allowance, if applicable).
In operational terms, therefore, a taxpayer not in receipt of the Blind Person’s Allowance can earn £17,570 over the course of the tax year, i.e. £12,570 plus £5,000, and not be subject to Income Tax on interest payments. If, though, taxable income is over £17,570, both the Personal Allowance and savings starter rate and threshold have been exceeded which is where the following applies.
The Personal Savings Allowance
The fact such payments are treated as a payment of interest means that the liability to Income Tax could fall within the Personal Savings Allowance (PSA) regime. The PSA is the amount a savings account can earn free of interest in a tax year as follows:
- Basic rate taxpayers (20%) can earn £1,000 in tax-free interest each year;
- Higher rate taxpayers (40%) can earn £500 in tax-free interest each year; but
- Additional rate taxpayers (45%) do not receive the allowance
(Note that the PSA applies to Scottish and Welsh taxpayers, as their Income Tax sharing powers only extend to income that is non-savings and non-dividend).
The PSA covers interest from:
- Bank and building society accounts (including the ‘Thank You’ and ‘Fairer Share’ payments);
- Savings and credit union accounts;
- Unit trusts, investment trusts and open-ended investment companies;
- Peer-to-peer lending;
- Trust funds;
- Payment protection insurance (PPI);
- Government or company bonds;
- Life annuity payments;
- Some life insurance contracts; but NOT
- Individual Savings Accounts (ISAs) where interest is free of tax
For Bookkeepers
Under law, Nationwide members are not shareholders and this is the reason that the payments are treated as interest and not dividends. HMRC will know the value of interest payments as there is a legal obligation for banks and building societies to declare such payments. So, if you are responsible for the completion of tax returns, it is important you ask the client for this information.
Note also the following points:
- There is no requirement to register for Self-Assessment unless income from savings and investments is more than £10,000; and
- Where there is an Income Tax liability, HMRC will collect this via an adjustment to the tax code, if possible. However, they have up to four years to collect this and may issue a demand via form P800. Inclusion in the tax code or a demand for payment might come as a surprise;
In short, regardless of the name of the payments and the implication they are dividends or goodwill payments, there is no disguising that they are interest payments and will be declared to HMRC.
