Although interest from a building society, bank, or local authority is free of basic rate tax, if you pay the higher rate of tax you have to pay the extra tax above the basic rate on it. So your interest always has to be shown on your tax return.
If you do not pay tax, or you want your interest paid 'gross' for some other reason, National Savings accounts which traditionally have paid interest gross will continue to do so, including the investment account and income and deposit bonds.
Remember that the first £700 interest from the National Savings Bank ordinary account is tax free anyway. It is often advisable to have some money in National Savings to ensure that your tax allowances are fully utilized. There is more information about National Savings and using your tax.
Alternatively, most high street banks have branches in the Channel Islands where you can deposit money and get the interest paid gross. The interest can be credited direct to a mainland bank account if you wish. You should ask your bank manager if you are interested in one of these accounts.
New sources of investment income are taxed in a strange and confusing way. Normally, tax on investment income is due in the year after the income is received. However, when a source of investment income ends, by law no tax can be collected after it has ceased. These two rules together would mean that a year's investment income was never taxed. So the Inland Revenue adopt a special rule and tax one of the early years twice.
The method works in this way. In the first two years, you are normally taxed on the income in the year you receive it. In the third year, you are normally taxed on the income received in the previous year. So you are taxed twice on the same second year's income. However, . . . ... see: Tax and retirement - New Investment Income