Savings Interest - best calc daily / monthly etc

Mr_Brillo

Hi

In one of those 3am waking moments when my brain seems to wirr more than ever - ( sad eh ) I wondered whether I could get an answer to the following? (I am a UK national living abroad at the mo)

Q1. Is it best to go for interest calculated daily added monthly or something else? (I guess its the AER that matters, but I would like to know)

Q2. Why do some offshore accounts offer to calculate interest daily and add at the end of the year? - they say to help with tax planning.

Q3. Do offshore savings accounts (Isle of Man, Guernsey, Jersey) raise their interest rates when the BOE rate increases?

Q4. Can one opt (when living in the UK) to have savings interest paid gross and to allow for it in the self assessment at the end of the Tax year?

and lastly, god knows where I got this one from....

Q5. If one has a savings account ( or even gets a divi from share holdings), basic rate tax is deducted and the interest or divi is paid net of this - does it go straight to the HMRC (immediately) or does the institution hold onto it for a period of time or even until the end of the tax year? IF it does hold it (conspiracy theory coming up!!) - what happens to the interest earnt on that money? (Hence Q 4)

mmmmmm??

oldfella

1 assuming the AER is the same there is no difference apart from a small amount better off in tax paying annually

2 for some people you might be better of moving your tax into next year

3 probably

4 it should come to the same thing - HMRC likely to prefer you not to receive interest gross if you pay tax

5 I suspect it isnt paid until the company pays its tax - if thats correct I think you can guess what happens to the interest

Mike

cheerfulcat

Mr_Brillo wrote:

Q4. Can one opt (when living in the UK) to have savings interest paid gross and to allow for it in the self assessment at the end of the Tax year?

Some accounts pay interest gross if you deposit more than £50,000.

Q5. If one has a savings account ( or even gets a divi from share holdings), basic rate tax is deducted and the interest or divi is paid net of this - does it go straight to the HMRC (immediately) or does the institution hold onto it for a period of time or even until the end of the tax year? IF it does hold it (conspiracy theory coming up!!) - what happens to the interest earnt on that money? (Hence Q 4)

Dividends have been made rather complicated but essentially what happens is that you receive a dividend and a tax voucher which covers the 10% basic rate tax liability, but the tax hasn't actually come off the dividend as such ( it used to, and the tax used to be reclaimable by non-taxpayers, as well as within ISAs and pension funds - this is Gordon Brown's oft-mentioned " tax grab " ). So there isn't actually anything being held back from the dividend to pay the taxman.

Mr_Brillo

Thanks both for your replies.

If Mikes' Q5 answer is correct about the interest and cheerfulcat is correct about the £50k + accounts, then for a large sum, the additional compounding interest could be useful, couldn't it?

But where are the £50k + accounts???

Mikeyorks

The question you ask (Q4) is 'can you opt ....'? The answer to that is 'no, you cannot do that' ... and then decide to pay the tax later, under SA.

The 'opt out' form is R85 and that contains a declaration to the effect :-

I declare
• I am unlikely to have income over my annual limit, or
the saver is unlikely to have income over their limit,
this year (box 4 on the Helpsheet).
• I will tell the bank or building society straight away if
my, or the saver’s, income increases and goes over the
annual limit in this tax year or in the future.

.... if you complete the declaration falsely, you're likely to be charged with evasion. It's an area HMRC take a particular interest in as it's a higher risk area - and they get downloads of all account data paying interest. Which they accumulate / consolidate for individuals in a data warehouse.

But it's obviously legitimate where a product is allowed to pay gross to all participants.

Q5.) No conspiracy. Banks / BSs etc which withold tax from interest etc are required to pay this over periodically (within the quarter of the deduction ..thereabouts) on a CT61. Which is a penalty / interest driven regime that penalises them heavily if they don't file / pay on time. It's quite separate from the Corporation Tax they pay on profits, each year.


Very relieved my 0300hrs thoughts ... tend along less money orientated lines!;)