Tax implications of Kaupthing Edge 3yr fixed term savings

dougz_2

http://www.kaupthingedge.co.uk/Includes/PDF/tandcs.pdf

22 Interest
22.1.1 Fixed Term, Unbroken Deal
a) Interest Calculation
Interest will be calculated on the Deal Amount, for each calendar day during the Deal Term, excluding the day of
expiry if it is a Business Day, or if it not a Business Day, the Business Day after the Deal Term expires. The
interest rate is fixed for the full Deal Term as detailed in the Interest Rate section of the Website.
b) Interest Payment
Interest will be paid into the Savings Account at the end of the Deal Term.

22.1.3 Interest Taxation
a) For Deals below £50,000 Sterling, Net Interest will be paid unless you have registered as a nontaxpayer
by properly completing and sending us the appropriate HM Revenue & Customs form,
currently R85, which we will send to you on request. However, we reserve the right to pay you Net
Interest, even if you have registered as a non-taxpayer. If you are a non-taxpayer but you have not
registered with us, you may be able to reclaim the tax directly from HM Revenue & Customs.
b) For Deals above £50,000 Sterling, Gross Interest will usually be paid but we reserve the right to pay
you Net Interest. It is your responsibility to inform HM Revenue & Customs and account for all
taxation due directly to them.

Given that clause 22.1.1b says they will add all 3 years of interest at the end of the 3rd year, does that mean you could end up paying more tax than with annual interest? e.g A full time student who is entitled to gross interest in the first 2 years and then graduates and gets a job. Or is there perhaps some way the interest can still be considered split into tax years?

Also, what is term 22.1.3b all about, why would they insist on gross taxation for large deposits rather than the other way around? This seems paradoxical to me. It also seems that you could end up having the hassle of filling in a tax return just because of it.

opinions4u

22.1.1b - always check when the interest is capitalised on any deal. This account may suit a higher rate taxpayer approaching retirement by deferring tax until after their income drops, but is a potential nightmare for low earners moving in to tax or up a tax band.

22.1.3b - because the law allows term deposits in excess of £50k to be paid gross. The individual tax liability remains on the interest earned and it is a matter between the individual and the revenue. Most providers allow this as an option - KE appear to have decided that's the way they will (legally) do business.

isofa

Yes you are right the interest will be classed in the year it is paid, not split into each year, many people choose these products because in the 1st 2 years they may be higher tax payers (perhaps just finishing a job, or retiring) and in the 3rd year they won't so it's advantageous.

I agree re the last point, seems a bit odd, but if they do pay gross interest, then you'd have to declare it on either a self assessment form, or in another way to HMRC.