Tax-Free Savings + tax status changing for bonds

djpailo

1)

I am aware the interest won't be taxed (up to £1000) from April next year. My question is, if you have several current accounts, how do you actually track that? Will it be up to consumers to work out how much interest they have earned before they are liable to tax or will it be done in-house by the government and, so long as we tell the bank that we are tax payers etc, everything will be sorted out by the banks?


2)

If I open up a bond during a period where I am not a tax payer, what happens if my tax status changes. Is it simple enough to just inform the bank and they sort it out?

Ed-1

djpailo wrote: »

1)

I am aware the interest won't be taxed (up to £1000) from April next year. My question is, if you have several current accounts, how do you actually track that? Will it be up to consumers to work out how much interest they have earned before they are liable to tax or will it be done in-house by the government and, so long as we tell the bank that we are tax payers etc, everything will be sorted out by the banks?


2)

If I open up a bond during a period where I am not a tax payer, what happens if my tax status changes. Is it simple enough to just inform the bank and they sort it out?

1) No bank will deduct tax from interest-paying accounts for anyone from next April.

It's expected that the onus will be on the customer to square up with HMRC if they've earned more than £1000 in unearned savings income (basic rate) or £500 in unearned savings income (higher rate).

2) It's when the interest is paid that counts, not when you open the account. The bank no longer needs to determine your tax status.

djpailo

Ed-1 wrote: »

1) No bank will deduct tax from interest-paying accounts for anyone from next April.

It's expected that the onus will be on the customer to square up with HMRC if they've earned more than £1000 in unearned savings income (basic rate) or £500 in unearned savings income (higher rate).

2) It's when the interest is paid that counts, not when you open the account. The bank no longer needs to determine your tax status.

Regarding the first, that is intriguing. So for people with many accounts, that might take a bit of effort to work it all out. I won't be near the threshold though

I don't follow the second answer.

Ballard

All banks report interest paid to HMRC so, in theory at least, the taxman should be able to work out how much interest you've earned for the year. That said, it's not worth their while chasing the odd £30 or £40 that someone might owe.

Ed-1

djpailo wrote: »

I don't follow the second answer.

It doesn't matter what tax band you are in when you open a bond (it never has); what matters is what tax band your final earned income is in at the end of the tax year in which you receive the interest.

As the bank won't be deducting any tax off interest whether you are a taxpayer or not, they don't need to know your tax status.

djpailo

Ed-1 wrote: »

It doesn't matter what tax band you are in when you open a bond (it never has); what matters is what tax band your final earned income is in at the end of the tax year in which you receive the interest.

What I mean is this, say you open a three year bond. For the first two years, I am not a tax payer, and the interest gets paid annually into the account. In the third year, I become a tax payer. What happens to the interest in that third year?

xylophone

What happens to the interest in that third year?

Under the new regime it will be paid gross but if you know that you have underpaid tax you advise HMRC.