Pensioner Bonds Guide

2010

Rollinghome wrote: »

Interest added to account on each anniversary. So the only difference is that it seems you won't be able to opt to have interest paid away to another account as you can with most fixed rate savings accounts.

If it`s added each year then it must be tax paid.

taylornj

I had an e-mail from NS&I about the bonds, with the rates, and a link...

http://www.nsandi.com/savings-65plus

John_Gray

taylornj wrote: »

I had an e-mail from NS&I about the bonds, with the rates, and a link...
http://www.nsandi.com/savings-65plus

That link makes no mention of the apparent need to pay tax annually before the end of the fixed term, and thus before the interest is actually received. This seems to be invidious.

Please could MSE Helen Saxon incorporate information from this Daily Telegraph article in the main MSE "Pensioner Bonds" article.

PS I see that "2010" above has given the same link - sorry!

2010

John_Gray wrote: »

That link makes no mention of the apparent need to pay tax annually before the end of the fixed term, and thus before the interest is actually received. This seems to be invidious.

Please could MSE Helen Saxon incorporate information from this Daily Telegraph article in the main MSE "Pensioner Bonds" article.

PS I see that "2010" above has given the same link - sorry!

Another article here about paying the tax annually before you get the interest, although from the way it reads basic taxpayers are not affected.

http://www.express.co.uk/news/politics/546705/Tax-blow-savers-new-Pensioner-Bonds

But while they will not receive the money until the bond matures, they will receive tax bills on the interest each year.
Basic rate taxpayers are unaffected as 20 per cent tax will be deducted automatically from the interest. But tax snag because interest will be paid out annually.

colsten

2010 wrote: »

Another article here about paying the tax annually before you get the interest, although from the way it reads basic taxpayers are not affected.

That's correct, it is only higher rate tax payers who will have to declare the interest they get from these bonds. Basic rate tax payers will automatically have 20% deducted, and worst case will have to re-claim the tax withheld (using an R40).

The higher rate tax payers will most likely not lose any sleep over this matter as they will have a spare £80ish kicking about. It would be really interesting to hear how many higher rate tax payers are in fact waiting to get £20K into these bonds - - I reckon it is a lot more likely that their money is already in investments, yielding at least 4% p.a.. I noticed that neither the Telegraph nor the Express could actually get a real "victim" of this "tax blow" to stand up and complain.

These articles are making mountains out of molehills and the Express is also wrong when they say "Some better-off savers could face paying up to £100 a year each." The extra tax is max £80 in year 1 and max £83.20 in year 2 (and max £86.53 in year 3). Might have been too hard for the journalist to calculate (not least as they seem to have trouble constructing full sentences....see "But tax snag because interest will be paid out annually")

People will also not "receive tax bills" - they have to declare the interest they earn to the HMRC.

I wish journalists would stop quoting Jonothan McColgan, of Combined Financial Strategies, who is said to have said it seemed “strange” to pay tax on interest before it was received. Nobody has to pay tax before they receive the interest. The interest will have been credited to people's accounts long before the deadline for the self assessment and the eventual payment of the tax. The interest is theirs, they have invested it, and they are earning further interest on it.

I-LOV-MONEY

If I am on PAYE and don't make a separate declaration to HMRC, am I supposed to write to them and tell them about this interest? Or is it like banks / building societies, because they deduct basic rate tax, there is nothing further to declare unless I have another source of income?

Steve_xx

I-LOV-MONEY wrote: »

If I am on PAYE and don't make a separate declaration to HMRC, am I supposed to write to them and tell them about this interest? Or is it like banks / building societies, because they deduct basic rate tax, there is nothing further to declare unless I have another source of income?

No, you wont need to contact HMRC if you are a basic rate taxpayer because tax on the income from these bonds is going to be deducted before interest is paid to you.

If you are a higher rate tax payer then yes, you will have to declare to HMRC

Archi_Bald

From the NS&I website:

The tax position

• Interest taxable and paid net (with basic rate tax taken off)
• Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due
• Non taxpayers, and those eligible to have any of their interest taxed at the new 0% rate (which starts from April 2015), can claim back the tax from HMRC
• Sorry, we’re not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds

http://www.nsandi.com/savings-65plus?ccd=NAJBAA

John_Gray

Archi_Bald wrote: »

Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due

Yes, but it doesn't say WHEN!

Surely if interest is paid only at the end of the one- or three-year period, then the tax is due only at that time.

Rollinghome

John_Gray wrote: »

Yes, but it doesn't say WHEN!

Surely if interest is paid only at the end of the one- or three-year period, then the tax is due only at that time.

Those two articles get my vote for the daftest financial story of the year.

The interest, net of basic rate tax, will be received on each anniversary of the account. It's yours, and it's added to your account right away. What's more, interest will be earned immediately on that interest at the 4% pa rate - i.e. it's compounded. It would be more of a "sting" if interest couldn't be added to the account and compounded in that way.

As always when interest is paid net of basic tax, those who pay tax above the basic rate will be liable to account for the additional tax due. That would be £80 on £10,000 for the first year. So if they open an account next month, Jan 2015, they'll get their first interest paid into their account 12 months later in January 2016.

Higher rate payers should account for it in their next tax return and will eventually have to pay the additional tax by 31 January 2017. In between getting the interest and paying the extra tax due, they'll have been earning 4% on that £80 - unlike with the basic rate tax already deducted long before at source. No "sting" involved

It's a non-story but a useful reminder that many of the articles in the financial pages are written by journos with the brain-power of a sardine sandwich