Are NS&I Green Savings Bonds taxable, and how is the interest taxed?

Full answer

NS&I Green Savings Bonds are a fixed-rate, fixed-term savings product whose proceeds the government earmarks for green projects. Despite some NS&I products being tax-free (like Premium Bonds prizes), Green Savings Bonds are NOT tax-free - the interest is taxable savings income. The key quirk is that interest is paid at the end of the fixed term, not annually, so it is treated as arising in the single tax year the bond matures. That can push a large lump of interest into one year and tip you into a higher band. How it is taxed: savings interest first uses your starting rate for savings (up to GBP 5,000 at 0%, reduced as non-savings income rises) and then your Personal Savings Allowance - GBP 1,000 for basic-rate taxpayers, GBP 500 for higher-rate, and GBP 0 for additional-rate taxpayers. Interest above those is taxed at your marginal rate (20%, 40% or 45%). Worked example: a higher-rate taxpayer who earns GBP 1,200 of interest at maturity uses the GBP 500 PSA, leaving GBP 700 taxed at 40% = GBP 280 tax. Because the bond is not an ISA, it does not use your GBP 20,000 ISA allowance and gets no ISA shelter. If your only goal is tax-free savings, a cash ISA may suit better; if the headline rate is high enough to beat your after-tax return, the bond can still win. NS&I usually reports interest to HMRC, and tax is collected via PAYE coding adjustment or Self Assessment. Use the savings interest tax calculator to estimate the bill on the maturity payout, and an ISA calculator to compare a sheltered alternative.

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