Income tax and Nationwide’s ‘Thank You’ and ‘Fairer Share’ payments

Eligible members of Nationwide Building Society saw ‘Big Nationwide Thank You’ payments of £50 paid into their accounts. What is the tax position of such payments? The £50 payment is made in addition to the £100 ‘Fairer Share’ paid earlier (to eligible members). So, as taxpayers deal with their tax returns, there are two payments to consider:

1. The £100 payment in tax year 2024/25.
2. The £50 payment in tax year 2025/26 (NB another may be payable later on).

Dividend?

Nationwide members are not shareholders, so the payment cannot be regarded as a dividend, something Nationwide points out.

Interest

Nationwide informs members that the payments are treated as interest payments and they will not be deducting tax (an obligation removed in 2016). Yet, the payment is taxable. Savings income is defined (at ITA 2007, s 18) and refers to legislation at ITTOIA 2005, which states: ‘Income tax is charged on interest’. This includes the ‘Thank You’ and ‘Fairer Share’ payments.

Scotland and Wales

This income tax treatment of interest payments applies in the same way to taxpayers UK-wide. Income tax sharing powers in Scotland and Wales only apply to non-savings and non-dividend income. HMRC’s guidance is clear that the payments are subject to income tax, although three factors should be considered.

1. The Personal Allowance

All taxpayers receive the personal allowance (£12,570 for 2025/26, and for 2024/25) and (if applicable, the blind person’s allowance). Many, but not all, taxpayers will use these to offset the amount of income tax payable. If (say) taxable earnings are less than the value of the personal allowance, the remainder can be used to offset the liability from interest payments.

2. The Starter Rate Limit for Savings

Finance Act 2008 amended ITA 2007 and introduced the starting rate limit for savings. This set a limit or threshold of the amount of interest that would be charged at a rate other than the employee’s marginal rate. Originally £2,320, the threshold has been increased as legislation provides, although F(No 2) A 2024 froze the threshold at £5,000 for 2024/25. Finance Act 2016 reduced the savings nil rate from 10% to 0%. Simply, £5,000 can be earned as an interest payment and income tax will be charged at 0%. Yet, as HMRC’s guidance makes clear, assuming the blind person’s allowance is not claimed:

• if the taxpayer earns more than £17,570, there is no eligibility for the starter rate for savings; but
• where taxable income (including interest) is over £12,570, there is eligibility, though the £5,000 reduces by £1 for every £1 of other income above the personal allowance.

3. The Personal Savings Allowance

Finance Act 2016 also introduced the personal savings allowance (PSA). The PSA is the amount a savings account can earn free of interest in a tax year, all depending on the marginal rate of the taxpayer:

• Basic rate taxpayers (20%) can earn £1,000;
• Higher rate taxpayers (40%) can earn £500;
• Additional rate taxpayers (45%) do not receive the allowance.

Where applicable, this is in addition to the personal and savings allowances above. If these do not cover all the interest payments received, this is where the PSA comes into play:

• If taxable income, including interest, is £50,270 or less, the £1,000 PSA applies.
• If it is between £50,271 and £125,140, the £500 PSA applies.
• If it is over £125,140, no PSA applies.

Therefore, depending on the level of earnings in the tax year, income tax may be avoided altogether, or partially, or not at all. Tax return data gathering It’s all about getting the right information and declaring it; however, we have to know what information to ask for. The purpose of this article is to point out that Nationwide’s payments to eligible members are payments of interest and there could be an income tax liability.

Practical Tip

There is a legal obligation for banks and building societies to declare such payments to HMRC. So, if you are responsible for the completion of tax returns, it is important that you ask the client for this information. HMRC might use the information to change the individual’s tax code to collect any tax due throughout the year, even where a self-assessment return is completed.