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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Interest: interest in kind

Interest in kind

Interest in kind is interest paid in non-cash form. For example, a retailer may offer a savings or investment product such as a bond or a savings account, on which it pays interest in the form of vouchers redeemable for goods or services. The goods and services may be supplied by the retailer, or by another retailer or organisation.

Such amounts are payment by time for the use of money and are interest on first principles (SAIM2030 onwards). However, it may not always be straightforward to determine the amount of such interest. For payments of interest on or after 17 July 2013, ITTOIA05/S370A provides a rule for the valuation of interest paid in the form of goods, services or vouchers. This value is:

  • the market value of the goods or services at the time the interest is paid,
  • or in the case of vouchers, the greatest of:

    • the face value of the voucher,
    • the amount of money for which it can be exchanged or
    • the market value, at the time of the payment, of the goods or services for which it can be exchanged.

Note that an instrument under which interest in kind is paid is not treated as a funding bond (SAIM2210).

SeeSAIM9117 for the rules on providing a certificate of tax deducted in such circumstances.