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  • FIRST POST
    • RG2015
    • By RG2015 1st Dec 17, 9:49 PM
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    RG2015
    When is NS&I 3yr Bond Interest taxable?
    • #1
    • 1st Dec 17, 9:49 PM
    When is NS&I 3yr Bond Interest taxable? 1st Dec 17 at 9:49 PM
    When is the interest on the 3 Year NS&I Guaranteed Growth Bond added for PSA calculation purposes? If the bond runs to full term the interest on £3,000 will be £202.38

    Is this potentially taxable when the bond matures or can it be split over the 3 or 4 tax years covered?

    I have tried researching this but cannot find a definitive answer.
Page 1
    • Dazed and confused
    • By Dazed and confused 1st Dec 17, 10:07 PM
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    Dazed and confused
    • #2
    • 1st Dec 17, 10:07 PM
    • #2
    • 1st Dec 17, 10:07 PM
    The product brochure downloadable on the NS&I website states the interest will be added annually on the anniversary date.

    So it seems like it will taxable in three different tax year, investment made today would have interest taxable in 2018/19, 2019/20 and 2020/21 (assuming final interest payment was made on 01/12/2020).
    • RG2015
    • By RG2015 1st Dec 17, 10:15 PM
    • 651 Posts
    • 342 Thanks
    RG2015
    • #3
    • 1st Dec 17, 10:15 PM
    • #3
    • 1st Dec 17, 10:15 PM
    The product brochure downloadable on the NS&I website states the interest will be added annually on the anniversary date.

    So it seems like it will taxable in three different tax year, investment made today would have interest taxable in 2018/19, 2019/20 and 2020/21 (assuming final interest payment was made on 01/12/2020).
    Originally posted by Dazed and confused
    Thanks, I did see this but the summary box also states the following:

    We’ll send you a statement in April each year, showing the interest you’ve earned and any withdrawals you might have made.

    Wouldn't this mean that an investment made today would include 4 months of interest in the 2017/2018 tax year? And thereafter 12 months, 12 months and 8 months in the following tax years?
    • newatc
    • By newatc 1st Dec 17, 10:25 PM
    • 114 Posts
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    newatc
    • #4
    • 1st Dec 17, 10:25 PM
    • #4
    • 1st Dec 17, 10:25 PM
    Thanks, I did see this but the summary box also states the following:

    We’ll send you a statement in April each year, showing the interest you’ve earned and any withdrawals you might have made.

    Wouldn't this mean that an investment made today would include 4 months of interest in the 2017/2018 tax year? And thereafter 12 months, 12 months and 8 months in the following tax years?
    Originally posted by RG2015
    No as interest will be added on the anniversary date, the first April statement will show as zero as the anniversary date has not been reached.
    • Dazed and confused
    • By Dazed and confused 1st Dec 17, 10:28 PM
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    Dazed and confused
    • #5
    • 1st Dec 17, 10:28 PM
    • #5
    • 1st Dec 17, 10:28 PM
    We're obviously interpreting this differently.

    I would say you haven't earned any interest until the anniversary date so there would be no taxable income in 2017:18.

    As it is ambiguous you probably need to phone NS&I for clarification before investing.
    • RG2015
    • By RG2015 1st Dec 17, 11:10 PM
    • 651 Posts
    • 342 Thanks
    RG2015
    • #6
    • 1st Dec 17, 11:10 PM
    • #6
    • 1st Dec 17, 11:10 PM
    We're obviously interpreting this differently.

    I would say you haven't earned any interest until the anniversary date so there would be no taxable income in 2017:18.

    As it is ambiguous you probably need to phone NS&I for clarification before investing.
    Originally posted by Dazed and confused
    Thanks again. I do find the PSA rules can be confusing.

    NS&I will be reporting the interest to HMRC so potentially, both of these parties could be interpreting the rules differently.

    My main concern is that the whole three years interest does not all hit at the end of the three years.
    • bowlhead99
    • By bowlhead99 1st Dec 17, 11:26 PM
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    bowlhead99
    • #7
    • 1st Dec 17, 11:26 PM
    • #7
    • 1st Dec 17, 11:26 PM
    Thanks again. I do find the PSA rules can be confusing.
    Originally posted by RG2015
    You get a personal savings allowance of £1000 or £500 or £0 depending on your tax bracket. You can use the allowance against your taxable interest income for that year. It's pretty straightforward unless you are right on the cusp of a bracket or have complex tax affairs.
    NS&I will be reporting the interest to HMRC so potentially, both of these parties could be interpreting the rules differently.
    No they couldn't. NS&I will report under UK tax rules. HMRC administer UK tax rules. They are the same rules.

    For the tax year in which the interest income is made available to you, NS&I will say it's been made available to you. HMRC are not going to "interpret it differently" as all they have to go on, in terms of what interest you got, is what NS&I tell them.

    If you make a deposit today and the product T&C says, as Dazed tells us, that " the interest will be added annually on the anniversary date" -then no interest is added until you get to the anniversary date, a year from now, which is in the 2018/19 tax year. NS&I have nothing to report to HMRC (or you) this tax year because no interest has been added to your account this tax year.
    My main concern is that the whole three years interest does not all hit at the end of the three years.
    Your concern is misplaced, because as Dazed tells us (which I haven't checked but they have no reason to lie...) the product brochure says "interest will be added annually on the anniversary date". If it is added annually on the anniversary date, it is not added in one lump at the end of the three years.

    So, don't be concerned. Just read the product T&C, and then read UK tax law if you aren't satisfied with answers here.
    Last edited by bowlhead99; 01-12-2017 at 11:55 PM.
    • capital0ne
    • By capital0ne 1st Dec 17, 11:56 PM
    • 149 Posts
    • 80 Thanks
    capital0ne
    • #8
    • 1st Dec 17, 11:56 PM
    • #8
    • 1st Dec 17, 11:56 PM
    It's all too simple.

    1 Interest is tax free up to £6k/£1k/£500/£0 if you are 0%/20%/40%45% tax payer

    2 You pay tax on interest received in the tax year

    Job done
    • RG2015
    • By RG2015 2nd Dec 17, 12:04 AM
    • 651 Posts
    • 342 Thanks
    RG2015
    • #9
    • 2nd Dec 17, 12:04 AM
    • #9
    • 2nd Dec 17, 12:04 AM
    Thanks, I did see this but the summary box also states the following:

    We’ll send you a statement in April each year, showing the interest you’ve earned and any withdrawals you might have made.

    Wouldn't this mean that an investment made today would include 4 months of interest in the 2017/2018 tax year? And thereafter 12 months, 12 months and 8 months in the following tax years?
    Originally posted by RG2015
    No as interest will be added on the anniversary date, the first April statement will show as zero as the anniversary date has not been reached.
    Originally posted by newatc
    Thanks newatc, I had missed your post when I replied to dazed and confused.

    I have a background in accounting and am used to applying income and expenditure in the period to which it relates. Hence I will have earned 4 months of interest during 2017/2018.

    However, your explanation does make this much clearer.
    • RG2015
    • By RG2015 2nd Dec 17, 12:16 AM
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    • 342 Thanks
    RG2015
    Your concern is misplaced, because as Dazed tells us (which I haven't checked but they have no reason to lie...) the product brochure says "interest will be added annually on the anniversary date". If it is added annually on the anniversary date, it is not added in one lump at the end of the three years.
    Originally posted by bowlhead99
    It's all to simple.

    You pay tax on interest received in the tax year
    Originally posted by capital0ne
    Thank you for your comprehensive replies. However, I still maintain that there is some ambiguity.

    The interest is added annually on the anniversary date but I only receive the interest at the end of three years.

    Therefore the date I actually receive the interest (after 3 years) is not the date that it becomes liable for tax.
    • IanManc
    • By IanManc 2nd Dec 17, 12:24 AM
    • 370 Posts
    • 549 Thanks
    IanManc
    Thank you for your comprehensive replies. However, I still maintain that there is some ambiguity.

    The interest is added annually on the anniversary date but I only receive the interest at the end of three years.

    Therefore the date I actually receive the interest (after 3 years) is not the date that it becomes liable for tax.
    Originally posted by RG2015
    No, you receive the interest when it is added to your account - that is on each anniversary date, not at the end of three years.
    • Terry98
    • By Terry98 2nd Dec 17, 5:58 AM
    • 851 Posts
    • 1,750 Thanks
    Terry98
    It's all too simple.

    1 Interest is tax free up to £6k/£1k/£500/£0 if you are 0%/20%/40%45% tax payer

    2 You pay tax on interest received in the tax year

    Job done
    Originally posted by capital0ne
    Another simple question then

    With interest rates as they are most people will never go over the tax free thresholds especially if they are standard rate or lower rate tax payers.

    Six or seven years ago I had a 5 year savings bond paying 5% a year so £20k in that would have breached the £1k threshold straight away never mind anything else I might have had in other savings accounts.

    Is it up to me to tell HMRC or would HMRC adjust my tax code retrospectively in which case I would be paying tax in arrears?
    Last edited by Terry98; 02-12-2017 at 6:05 AM.
    • Dazed and confused
    • By Dazed and confused 2nd Dec 17, 8:52 AM
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    Dazed and confused
    According to gov.uk you don't have to do anything as HMRC will get the info from the banks.

    But there are disadvantages for some with this approach in that you have to pay the tax in a condensed period.

    So say you do nothing and HMRC catch up now with last year, 2016:17. They will want you to pay the tax for 2016:17 over the 12 months from 6 April 2018 to 5 April 2019. And they will estimate the tax you owe for this year (2017:18) and collect a bit over the next 4 months but the rest will be collected over the 12 months from 6 April 2018 to 5 April 2019.

    And they will collect the tax due for 2018:19 over the 12 months from 6 April 2018 to 5 April 2019.

    So you are essentially paying three years worth of tax over 12and a bit months.

    Fine for some not so good for others who might prefer to keep things more up to date and spread it out over a more natural time frame
    • Terry98
    • By Terry98 2nd Dec 17, 9:31 AM
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    • 1,750 Thanks
    Terry98
    Thanks for the reply.

    So quite a few standard rate tax payers will have to get used to paying some of their tax in arrears when interest rates get back to 'normal' levels? I suppose that is the payback for the new savings allowance.
    • Dazed and confused
    • By Dazed and confused 2nd Dec 17, 9:51 AM
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    Dazed and confused
    I guess so but you always have the option of keeping HMRC informed of your interest and educated guesstimate for the current/forthcoming year in which case you could pay pretty much year by year.
    • RG2015
    • By RG2015 2nd Dec 17, 9:53 AM
    • 651 Posts
    • 342 Thanks
    RG2015
    No, you receive the interest when it is added to your account - that is on each anniversary date, not at the end of three years.
    Originally posted by IanManc
    Thank you for your reply and it is now clear that I have misunderstood the terms being used.

    The bond matures after three years so I am paid the principal (£3,000) and the interest (£202.38) after three years.

    I now understand that receiving interest and being paid interest are two different things.
    • caveman38
    • By caveman38 2nd Dec 17, 10:05 AM
    • 891 Posts
    • 287 Thanks
    caveman38
    According to gov.uk you don't have to do anything as HMRC will get the info from the banks.

    But there are disadvantages for some with this approach in that you have to pay the tax in a condensed period.

    So say you do nothing and HMRC catch up now with last year, 2016:17. They will want you to pay the tax for 2016:17 over the 12 months from 6 April 2018 to 5 April 2019. And they will estimate the tax you owe for this year (2017:18) and collect a bit over the next 4 months but the rest will be collected over the 12 months from 6 April 2018 to 5 April 2019.

    And they will collect the tax due for 2018:19 over the 12 months from 6 April 2018 to 5 April 2019.

    So you are essentially paying three years worth of tax over 12and a bit months.

    Fine for some not so good for others who might prefer to keep things more up to date and spread it out over a more natural time frame
    Originally posted by Dazed and confused

    I'm a bit confused myself. Surely there is no worries about tax due for 16/17 tax year as tax was stopped at source. The new rules only started from April 17?
    • Dazed and confused
    • By Dazed and confused 2nd Dec 17, 10:47 AM
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    Dazed and confused
    You must have had a special exemption because tax stopped being deducted from (virtually) all accounts from 6 April 2016.
    • caveman38
    • By caveman38 2nd Dec 17, 11:39 AM
    • 891 Posts
    • 287 Thanks
    caveman38
    You must have had a special exemption because tax stopped being deducted from (virtually) all accounts from 6 April 2016.
    Originally posted by Dazed and confused

    Oops, better check then.
    • Terry98
    • By Terry98 2nd Dec 17, 12:01 PM
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    • 1,750 Thanks
    Terry98
    I guess so but you always have the option of keeping HMRC informed of your interest and educated guesstimate for the current/forthcoming year in which case you could pay pretty much year by year.
    Originally posted by Dazed and confused
    I am not so sure. I use MS Money and keep it up to date on a monthly basis and I would still have problems trying to forecast interest payments that are paid on a annual basis.I am not looking a gift horse in the mouth but I think quite a few people on tight budgets will be upset when their tax code gets reduced year on year.

    Now how much did they say that getting rid of car tax discs would save the country?
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