making use of the personal savings allowance

MK62

swanseajack47 wrote: »

Thank you all so much for your helpful comments. To give a bit more detail. I'm retired with both state pension and occupational pension, and am a basic rate taxpyer. I've put the maximum amount allowed in an ISA for 2019-20, but also have some other savings that I could put into a one year fixed income bond and that would generate approximately £1000 gross interest. I have a choice of annual interest being added and paid out at the end of the one year term, or of interest being added to the investment on a monthly basis. I don't appear to have any choice about nominating my own bank a/c into which the interest is paid monthly. ... but the interest can be added monthly to the investment. My question is as to whether HMRC would recognise the total of all the monthly interest income up until the end of the financial year as meeting the conditions for the annual PSA, or whether they would object on the basis that the monthly amounts were being added to the investment and thus could not be accessed by me until the end of the fixed term, and consequently that they would audit the interest as counting towards the 2020-21 PSA, not the 2019-20 PSA.

My understanding is that interest counts in the tax year it becomes accessible, and so it would be the second option.
However, it may come down to exactly what the savings provider actually reports to HMRC. If they do it correctly, and if the interest cannot be accessed, then they should report nothing for this tax year.......however, if the interest can be accessed (even by early redemption, if available), then they should report the interest for this tax year.

I don't think HMRC are in a position to check every account's term and conditions for interest details, and so they will rely on what they are told by the provider. You may be able to challenge this if it's incorrect, but it's whether you think it's worth the hassle.

An option could be to just use a 9/10 month fixed rate and play it safe - if you really must have the interest accounted this tax year. You can get 1.8%pa at the moment.....

AnotherJoe

Terry_Towelling wrote: »

Are you referring to the tax year to which you allocate your savings interest when an account paying annual interest spans more than one tax year?

The issue also exists for monthly interest accounts. Should monthly interest paid in April (after 6th) be counted entirely against the new tax year despite the fact that some of it was 'earned' the previous tax year? I think that's clear, it's only counted when it's paid and the question is, does if it's available make a difference.

If it were correct to apportion it, surely HMRC would have told savings account providers to do this when they report and when they prepare our interest statements - but they don't. We'd also be receiving confusing interest statements for accounts where none has yet been paid.

Apportioning would also require Joe Bloggs to do some maths - some of which could be quite complex on monthly-interest accounts if the account had a lot of activity around the tax-year change-over and I can't see that being expected - or happening - or many people being capable of it.

The examples on the HMRC website and relating that to the "is it accessible " question would seem to indicate it's not the frequency but the availability.
So if you have a one year bond that pays interest either monthly or at the end, its the same effect , allthough you can see the interest being added with the monthly you cant access it.

Shedman

Useful discusssion which has raised things I wasn't aware about.

This is from a Telegraph article in April 2016 on the issue:

>>An HMRC spokesman said: “In general, interest counts towards a saver's PSA when it 'arises' - that is when it is received, or made available to the recipient.

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

For example, if you have a three-year bond that does not allow any access throughout the term, the interest earned will contribute to your PSA at the end of the term. This would be the case regardless of whether it paid interest annually or on maturity <<

Must admit that's different to how I always assumed it to be treated and thought each monthly interest would count towards tax on the 'paid' (or credited) basis regardless as to whether it was added to the fixed term account or paid out to a external account. Might have affected some of my planning :eek:

Interesting one would be what about, say, interest paid quarterly on a 90 day account on usual quarter days (ie 31 Dec, 31 March etc). Presumably the Dec interest counts in the current tax year but the March one counts in the next tax year as you can't get it out without 90 days notice so not available until end of June in next tax year?

UPDATE: Interesting. i have just looked at the Certificate of Interest from Secure Trust Bank on a 90 day account that paid interest quarterly and they have included the 31 March interest in the total interest to be reported for 2018-19.

And Wyelands Bank have, for a 1 year fixed saver ending in Aug 19 but interest being credited to account monthly, shown the interest credited during period Aug18-5Apr19 on the Section 975 statement annual interest statement so clearly treating monthly interest credited to account as included in that tax year.

Umm so what is the correct treatment as both these would seem to be wrong from above discussion and reading HMRC manual. Is there an extra statutory concession that we missed perhaps?

Shedman

It also then begs the question as to what is the point of opting for monthly interest on fixed rate savings, given that banks usually lower the interest slightly for monthly vs annual to give same AER, if the interest only counts at the end of the term anyway?

Shedman

Here's the link to the Telegraph article in case it helps others. It also goes on to discuss situation where there is a fixed rate bond but you can access early by say paying an interest penalty.

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

soulsaver

Before the intro of PSA, it's ironic HMRC didn't tell you could claim back the tax that the banks deducted at source during the term of your fixes..?

And ironic that the banks didn't tell you they'd pay the sum total at the end because you'd be much better off because the gross interest would be compounded over the term of the fixes?