Low annuity & Tax free interest on savings, how to calc tax?

Mikeyorks

ajw1100 wrote: »

Now if I give HSBC £50k from my current account and they give me £1k interest a year later then I transfer the whole back into my current account then my 'income' is still the interest of £1k?

Your income is the gross interest. So if tax has been deducted, by HSBC at 20%, then the income is £1250. If no tax deducted at source - the income is £1000.


On your list of interest received :

• The Halifax reward should read as £75 Gross with £15 tax deducted. As the 'reward' is actually £6.25pm and they deduct £1.25pm at source. You can't 'R85' that one - but you can reclaim the tax.
• I'm still puzzled that the MGM advantage is a straightforward interest account. The 'tax treated as paid' looks to indicate otherwise. And boxes 12.3 to 12.5 are eluding me on an SA Return? But - taking your figures at face value :

Total income ............................. £10873
Personal allowance .................... £6475
Taxable ................................... £4398

As all this excess over the PA is interest then :

Tax due on £2440 at 10% ..................£244
Tax due on £1958 at 20% ..................£392

Total tax due ................................... £636
Tax paid ......................................... £1896
Tax overpaid .....................................£1260

You will need to talk with HMRC about the tax treatment of the MGM account. But - regardless of the outcome - you will still have overpaid in 10-11.

As regards the R85s. DO NOT CANCEL THEM until April 2012 - for the reasons discussed in posts #8 and #9. I still can't reconcile the sum deducted from your Coding for the current year - but HMRC only normally code out interest for Higher Rate taxpayers. So they have tacitly accepted your R85s. Leave it at that until April ...... otherwise you are only adding unnecessarily to what they owe you. Get them to take the interest out of Coding for 12-13 ...... and kill the R85s at that point.

ajw1100

Thank you for your post Mike. Things are beginning to make sense at last! I never got involved with income tax at work and never had direct dealings with HMRC other than the odd tax code letter.

I have spoken to MGM Advantage, they have said the plan I had, a MIDAS Plan was 'predominately a 25 year savings plan with a life cover attachment' They could not help as to how HMRC would treat this as far as income tax was concerned. They also said that in the letter sent to me at maturity with phrases such as-
"A chargeable event" and " Under HMRC regulations, a gain made on a life or annuity product may, in certain circumstances, be subject to tax at higher rates. This is known as a chargeable event........"
-Were standard phrases that may or may not apply in all cases.

This income according to MGMadvantage is 'savings' income.

As regards the R85's I have visited my branch of the Halifax today and they have confirmed none of my accounts, current, web and savings are paid gross with exception of my ISA accounts.

In also visited my Santander branch with whom I have a 1 yr Loyalty Tracker Bond which I had registered with interest to be paid gross, this bond will mature on the 1st December and I have requested the full amount of £30k plus £1032.90 interest be transferred to my Santander current account. So that will be the end of that R85 anyway.

My P.O savings account matured last month so that R85 ceased with its maturity and that money has now been transferred to a Santander account that pays income tax on interest.

I am now clear of R85's due to maturing of savings plans.

Anyway from my take of the information that has kindly been provided by yourself and others it would seem I may well be owed some income tax. I would prefer to get this sorted this tax year than leave it until 2012 when I will have to get 2011~12 straight, one year at a time is more than enough! Well ,for me anyway....

Is there a standard way of advising them of my savings, on a spreadsheet with all relevant tax statements attached, or just send them the statements and let them do the sums?

A large thank you for helping me in this matter.:T:T:T

Mikeyorks

ajw1100 wrote: »

I have spoken to MGM Advantage, they have said the plan I had, a MIDAS Plan was 'predominately a 25 year savings plan with a life cover attachment'

You beat me by a half hour or so. I was puzzled at the reference to '12.3 thru 12.5 on your Return' .......... and had just managed to find that on an old SA Return. it relates to 'Life Insurance policies - where tax is treated as paid'. So that fits with the letter from MGM (which needs updating as the Box numbers were changed years ago!)

If that is the case then it's potentially bad news on the size of the repayment for 10-11. As 'tax treated as paid' is not repayable. It's just treated as a credit in the event the 'gain' pushes you into the 40% rate. However - the 'gain' of £7839 is also potentially reduceable by your PA and the application of the 10% rate. There's some detail here (top 2 paras apply) :-

http://www.hmrc.gov.uk/manuals/iptm/iptm3810.htm

This income according to MGMadvantage is 'savings' income.

.............. that seems to contradict the letter, but I think the 'tax treated as paid' is correct and this is a chargeable event on maturity.

I can't find the exampled calculation referred to in the HMRC link. And I'm not going to guess it - as the outcome depends on how your income is ordered. If eg the 'chargeable event' slots between your earned income and the interest? Then most of the 'gain' is hopefully reduced and thereby leaving most of the tax you have paid (around £350) as refundable. But I'm unsure and afraid you're just going to have to pass that in front of HMRC (unless anyone else on here knows how it's calculated).

Is there a standard way of advising them of my savings, on a spreadsheet with all relevant tax statements attached, or just send them the statements and let them do the sums?

No. You don't want to get into SA, as it's unnecessary. An R40 (attach a computation to it) is the route if you're claiming a repayment. There is a P810 - which is a single page return. But I would avoid that as they're issued periodically (every 3 years by default) and tend to get stockpiled when received until late in the year. With your circumstances (tax now deducted at source on interest) - get HMRC to remove the restriction in your Code number wef 2012-13 and then submit an R40 as soon as you know the tax deducted on interest for the year?

ajw1100

Hi Mikeyorks.

Sorry for not responding sooner, due to sick Mother in Law. Not sick enough yet though!

I have printed off the R40 and see there is a separate section to enter the 'Tax treated as paid' under "Any other income and benefits" on page 3.

I will fill this in and send off to HMRC together with a summary sheet and see what they come up with.

Thanks for your help.

Regards

AJW1100