Self Assessment - Tax paid at source on interest

Bluntman_1983

Hi,

Looking for some advice on how to correctly complete my self-assessment form.

During 2018/19 tax year I received redress payments from various miss-sold historic loans. These included interest for the intervening years (set at the standard FOS rate of 8% pa). The gross interest was £2,040.55. This was taxed at source at 20% rate (I have documentation for all of it) so the net I received was £1,632.44. I received no other interest (from savings etc.) during the year (all ISAs).

Now for the fun bit.

I am a higher rate taxpayer and was so for the duration of 2018/19. Therefore, I think that I should be paying tax at 40% on the gross interest received, less the £500 tax free limit. So by my calculations I owe the taxman £208.

But... The online self-assessment form only has spaces for taxed UK interest or untaxed UK interest. Well, this has been taxed, but at the wrong rate.

Any ideas how to complete the form to get the right result or am I in for a very long phonecall with the tax office?

Also, as I didn't receive any taxable interest income in prior years (or in fact ever) can i use my prior years' allowance(s) to reduce my calculation above? Bit hopeful I know, but if I can how do I do that?

Thanks in advance for your help.

MDMD

You put it in the taxed interest box (net of the 20%). The form assumes that you have had any tax deducted at the basic rate of income tax of 20% (as per part 15 of the Income Tax Act 2007).

They will gross it up again, work out what you should have paid and deduct what you did pay.

And no, any allowances, nil or lower rate bands can’t be carried forward

Dazed_and_confused

Also, as I didn't receive any taxable interest income in prior years (or in fact ever) can i use my prior years' allowance(s) to reduce my calculation above? Bit hopeful I know, but if I can how do I do that?

There is no "allowance" for savings interest.

As you were a higher rate payer without this interest you will have used all your Personal Allowance against your other income and the £2040 will be taxed as,

£500 x 0% = £0.00 (savings nil rate)
£1,540 x 40% = £416 (savings higher rate)

Total tax due £416 (less tax already paid £208).

In some circumstances having this £2,040 interest can mean you have additional amounts to pay over and above the expected £208. For instance any High Income Child Benefit Charge could be 20.4% higher than it would otherwise be as the £2,040 is part of your adjusted net income.

Bluntman_1983

Ok, thanks - that's really helpful. Appreciate the responses.