Tax on rolled up interest on Fixed Term Savings?

soulsaver

This was 'news' to me:

http://www.telegraph.co.uk/money/ask-a-money-expert/when-does-the-interest-on-my-fixed-rate-bond-contribute-to-my-pe/

It suggests that interest in a fixed term bond, say 5 year, even if paid annually and added to the account, if it isn't accessible (available) until the end of the term is, in total, taxable at the end of the term.

"Interest has been made available if it is credited to an account on which the account holder is free to draw.”

If correct, the interpretation in the link is a significant change:
Before the intro of saving interest being paid gross (when interest was paid net of BR tax) banks deducted the tax on annual interest payments if credited to the account, even if not accessible to the saver until the end of the term.

So, without saying it clearly, is the link reporting HMRC has changed its rules, presumably to allow it to capture more tax by rolled up interest breaching the PSA limit in the final year?

le_loup

No change here. It was ever thus. Good old DT last with the news.

xylophone

Confused thinking.

In the case of the Paragon bond, the interest is available either monthly or annually and is taxable when made available - the fact that the bond owner chooses to add the credited interest to the capital (rather than having it paid out) thus adding to the sum unavailable to withdraw does not change this fact.

Suppose that the interest paid net regime had continued.

Paragon would not have added gross interest at the end of the year but net interest (unless there was a valid P85 on the account).

Therefore the interest would have been taxed in the tax year of receipt.

If the bond owner were completing a self assessment form he would have had to declare the interest if it had been paid.


If he were a higher rate tax payer he would have had to pay an additional 20% for that tax year.

He could hardly be expected to pay that additional tax again on the same interest at maturity.

Below is a more accurate statement of the case, I think.

http://www.yourmoney.com/news/fixed-term-products-taxed-maturity/