Why is everyone paying gross int on £50K?

silentfox

trying to secure the last few fixed rate long term accounts but keep seeing this

"Interest will be paid net to UK tax-payers for single deposits under £50,000, and paid gross for single deposits of £50,000 or more."

why are they doing this?

I guess you then have to cough up to the inland revenue, what a pain, I guess you could put in £49,999.00?

Am i missing something?

alanq

I don't know why but HMRC generally requires all interest on deposits under £50K to be paid net but permits interest on certain deposits over £50K to be paid gross. Why is it a pain to defer paying tax until a later date? Surely this is usually an advantage so long as one makes sure that sufficient funds are kept to pay the tax bill when it eventually arrives. http://www.hmrc.gov.uk/manuals/bamanual/BAM44030.htm

opinions4u

You can potentially defer the due date for the tax bill on the interest by upto 9 months (accountants feel free to correct that).

e.g. £1m at 6% gross earns £60k interest. Normally £12,000 tax would be taken off this at source.

Invest that £12,000 at 6% gross for 9 months = £720 x 9/12 = £540 additional interest earned on the tax that would normally have been deducted at source.

I don't qualify!

Jake'sGran

I have never come across that before and I have a few rated accounts. As a non taxpayer I just run off an R85 and complete it. A few banks I have dealt with have deducted tax and then I have to reclaim it which I hate having to do. Last year it was only £2 but I still reclaimed it.

It is baffling that an organisation can deduct tax under £50k and then not when it is over that amount. Don't understand the logic behind it!

Jake'sGran

Sorry, first line should have read "fixed rate accounts".

silentfox

advantage? if you are a basic rate tax payer wouldn't it be easier if you simply got it taken off at source, otherwise I presume there would be paper work.

Also in respect of gross interest if you invested the interest as you suggest wouldn't you then have to pay tax on the interest on the interest. In addition to paying tax on the gross interest.

agsnu

silentfox wrote: »

Also in respect of gross interest if you invested the interest as you suggest wouldn't you then have to pay tax on the interest on the interest. In addition to paying tax on the gross interest.

Even if you get interest paid net of tax you're paying tax on the interest on interest, but if you were being paid gross then you'd have (marginally) more interest that you could then compound over the course of the year before you had to settle up with the tax man, so you'd end up slightly better off.

altocumulus

agsnu wrote: »

Even if you get interest paid net of tax you're paying tax on the interest on interest, but if you were being paid gross then you'd have (marginally) more interest that you could then compound over the course of the year before you had to settle up with the tax man, so you'd end up slightly better off.

....interesting...... :rotfl:

ChiefGrasscutter

In practice this interest gain on sums invested over £50K only works for the first year of receiving gross interest as after that the Inland Revenue now know you are going to receive lots of interest paid gross during the forthcoming year.

So they alter your self assessment tax details accordingly and require you to make "payments on account" - effectively making you pay the tax in advance: their estimate is based on your last year's gross income received. At the end of the tax year I.R then balance up and either they owe you money or vici-versa depending on whether your gross income was less or more than the previous year's.