‘Legal tender’ is a term that people often use, but when it comes to what can or can’t be used to pay for things, it has little practical use.
What is legal tender?
What is legal tender?
Legal tender has a very narrow and technical meaning, which relates to settling debts. It means that if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender.
What is classed as legal tender varies throughout the UK. In England and Wales, legal tender is Royal Mint coins and Bank of England notes. In Scotland and Northern Ireland only Royal Mint coins are legal tender. Throughout the UK, there are some restrictions when using the lower value coins as legal tender. For example, 1p and 2p coins only count as legal tender for any amount up to 20p.
What is not legal tender?
There are many acceptable payment methods which aren’t technically legal tender. This is why the term ‘legal tender’ has little use in ordinary everyday transactions.
Most shops accept payment by debit or credit card, and some accept cheques and contactless payments. These are safe and convenient ways to pay, despite not being classed as legal tender.
The same is true for Scottish and Northern Ireland banknotes. Seven banks in Scotland and Northern Ireland are authorised to issue banknotes. These notes make up the majority of banknotes in Scotland and Northern Ireland and legislation is in place to ensure that noteholders have a similar level of protection as they would for Bank of England notes. Despite this, Scottish and Northern Ireland banknotes are not classified as legal tender anywhere in the UK. Equally, Bank of England notes are not legal tender in Scotland and Northern Ireland.
Scottish and Northern Irish banknotes
Does legal tender status matter for everyday transactions?
No. Whether you pay with banknotes, coins, debit cards or anything else as payment is a decision between you and the other person involved in the transaction.
In addition, shops are not obliged to accept legal tender. If you hand over a £50 note to pay for a banana in your local grocery store, the staff are within their rights to choose not to accept it. Likewise for all other banknotes – it’s a matter of discretion.
When do Bank of England notes stop being legal tender?
Bank of England notes stop being legal tender when we announce that they are withdrawn.
Before this happens, a newly designed banknote is produced and enters circulation. Bank of England notes keep their face value for all time. If your local bank, building society or Post Office is not willing to accept them, then you can exchange them for new notes at the Bank of England.
For the most recent note withdrawals (e.g. the Houblon £50 note in 2014), we publicised the withdrawal date three months in advance. For the current paper £5 note, the period is longer: it will be legal tender until 5 May 2017.
A withdrawn One Pound banknote