Income limit for age related allowances question

philadam

I'm looking for thoughts on this one and I'll try and explain as easily as I can. My mother is 80 and a widow and therefore for the tax year 08/09 received a personal allowance of £9180. On completing her tax return recently it came to light that her bank (Lloyds) did not credit her savings account with annual interest on the 10th April 2008 (they do this on the 10th April every year), but left it until February this year. This in effect means she received around 20 months worth of interest in February 2009 and this has taken her over the income limit of £21900 by £1000. As I understand it this will reduce her allowance by £500.

As far as I can tell, the reason for the interest date being changed was because the account was reclassified as a different type of savings account in February 2008 and this had the effect of altering the annual date upon which the interest is paid.

My question is, is this something that is worth pursuing with the tax office and Lloyds? Has anyone had any experience of this before?

I hope that makes sense.

Phil

dunstonh

My question is, is this something that is worth pursuing with the tax office and Lloyds? Has anyone had any experience of this before?

Interest is taxed at the point it is received. Not as it is accrued. So, if the date change of the interest payment is normal for the revised account then nothing can be done.

Mikeyorks

I would have thought the interest would have been applied at the point of re-classification? But it's a bit academic if the new account resulted in interest being brought forward a couple of months .... as both fall in 08-09 therefore the result is the same.

Previous post from dunstonh is spot on .... there's no practical alternative to accepting the consolidation of the interest into the one year. You can't opt to apportion it on an accrual basis.

Having just been reading about the latest round in MP expenses (which is beginning to make Fred Goodwin look positively saintly) .... I would have suggested the Nelson approach. But impractical as a Return is involved. It translates to £100 at worst (£500 @ 20%) .... so I'm afraid she has to accept it.

But .... do bear in mind that if her earned income doesn't exceed £11,000 (her revised PA of £8680 + the 10% band of £2320) .... then some or all of the £2320 10% Savings band can be off-set against the 20% tax presumably suffered at source on her gross Interest.

philadam

Mikeyorks wrote: »

I would have thought the interest would have been applied at the point of re-classification? But it's a bit academic if the new account resulted in interest being brought forward a couple of months .... as both fall in 08-09 therefore the result is the same.

Yep, that was my thought too. I felt it was swings and roundabouts initially when I looked at it, but thinking further she is now left with an interest period of 11.4.07 to 16.2.09 which is being reported on her 08/09 tax return that gives a much higher interest figure than she would have had if the account was credited as it was before on the 10th April 2008 or at least interest being applied when the product classification changed in February 2008. I suspect there is little that can be done, but I will put a note with the information she provides to the Inland Revenue.

Phil

Mikeyorks

Phil ..... there is nothing can be done.

It's the same if you take out a 2 year fixed rate account ..... where all the interest is paid on maturity. That's the point at which tax becomes due, you can't apportion it - I'm afraid.

philadam

Mile, thanks. I hadn't thought of the two year thing. At least it should now be back in sync with interest paid each February.

Phil