QIB UK

GeoffTF

EthicsGradient said:

GeoffTF said:

EthicsGradient said:

"This savings account does NOT operate on the basis that you can end the fixed term of your savings account prematurely and pay a fee to withdraw your funds sooner"

which is what HMRC uses as a test for whether tax is due annually or only on maturity (if you can pay a fee for early withdrawal, then any profit shown added to the total worth of a bond is treated as being taxable when it's added). Your 5 year bond may be different from a 2 year one, of course.

No, that is not true. My next door neighbour it is tax adviser. I asked her about this matter, after being worried by the HMRC internal manual. In practice is your choice, and does not depend on whether you were offered the option to withdraw your funds sooner. HMRC is happy provided you pay the tax the tax. You can declare the interest each year and be taxed on it annually. Alternatively, you can declare all the interest on maturity, and be taxed on it then. She said that her clients usually paid on maturity.

My two year QIB bond paid out a few months ago. The information given left it unclear when the tax was payable. Hence my question. I declared the interest on maturity.

Well, it seems odd that, since the internal manual looks pretty clear

"Sam entered into a five year fixed-term bond on 6 April 2017. The bond credits interest to Sam’s account annually on the 31 December. Sam can only gain access to both the annual interest and the principal in advance of 5 April 2022 if a penalty is paid for early access.

Since the terms and conditions of the bond allow Sam to draw on the funds, although with a penalty, the interest arises and is taxable each year as it is credited.

If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point."

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440

that a tax adviser would then say "they don't care". With all due respect to her, I'd rather take what HMRC says in writing about HMRC's position than hers, expressed as friendly word-of-mouth advice to a neighbour (was she going from an actual case in which the year(s) tax was due made a significant difference?). If they do say somewhere, in writing, "it's OK as long as it's all declared at some time", that would be different.

I believe so, but perhaps I should clarify. She has lots of clients with term accounts. I said that I had lots of these accounts and that they did not allow early access. I also said that I had been declaring the the interest when it was paid into the account (for many years). I was worried when I read the passage that you quoted. She said that I should not worry. HMRC would see what I was doing and would be happy to receive the tax early. (I could be in a higher tax band later on, but they would not know that.) When I had an NS&I account that did allow access, I also paid annually. It is possible that HMRC would not have been happy if I had paid at maturity.

masonic

Worth mentioning again that most providers declare interest to HMRC when it is added to the account even though it cannot be accessed. Doing as the provider does is the path of least resistance, which in the vast majority of cases will be contrary to the HMRC Savings and Investment Manual.

GeoffTF

masonic said:

Worth mentioning again that most providers declare interest to HMRC when it is added to the account even though it cannot be accessed. Doing as the provider does is the path of least resistance, which in the vast majority of cases will be contrary to the HMRC Savings and Investment Manual.

I used to get a Tax Certificate telling me that tax had been deducted each year. Later I received an Interest Statement each year. I just carried on paying the tax as before. I mentioned this to a retired corporate accountant friend. He said "you and everybody else." What should happen when tax was being deducted at source for the first few years of a no access bond's life and then it was not? It would be a nightmare for HMRC to go back several years and change our tax returns retrospectively, and we would all cry foul that they had not raised the issue earlier.

masonic

GeoffTF said:

masonic said:

Worth mentioning again that most providers declare interest to HMRC when it is added to the account even though it cannot be accessed. Doing as the provider does is the path of least resistance, which in the vast majority of cases will be contrary to the HMRC Savings and Investment Manual.

I used to get a Tax Certificate telling me that tax had been deducted each year. Later I received an Interest Statement each year. I just carried on paying the tax as before. I mentioned this to a retired corporate accountant friend. He said "you and everybody else." What should happen when tax was being deducted at source for the first few years of a no access bond's life and then it was not? It would be a nightmare for HMRC to go back several years and change our tax returns retrospectively, and we would all cry foul that they had not raised the issue earlier.

Savings insitutions didn't change their stance on when interest was treated by them as being received when they stopped deducting tax at source. Tax certificates are still a thing, and can be requested if an institution no longer sends them automatically. They state how much interest was received in the tax year. They send this information to HMRC, those on PAYE can obtain it from their personal tax account or direct from HMRC, while it is a bit more difficult for those on self-assessment to access. I have queried this issue with one or two savings providers where it is not clear, but I now generally opt to have interest paid away where possible, and other than Zopa (who clearly state it is treated as all being received at maturity), treat any added to my savings accounts as being received when paid, given I'm now familiar with most providers' stance.

EthicsGradient

If HMRC get roughly the same amount of tax in the end, I can see they won't be bothered, but now, with the highest interest rates since interest started getting paid gross to everyone, which year it arises in could make a real difference. Take a basic rate taxpayer who puts £20,000 in a 4.9% 3 year bond. If the tax is assessed annually (ignoring compounding for simplicity), that's £980 - if it's the only savings, then no tax payable in any year. If it all arises at maturity, it's £2,940, and thus 20% of £1,940 payable in the final year.

Getting as much clarification as possible from providers (and, if they'd deign to, HMRC) seems worthwhile. And, as masonic says, to opt for the version of an account where it's clear, and best fits your own tax circumstances, even if that means not getting the compounding you'd like (who won't need a bit extra per year for food and utilities for the next few years anyway?)

GeoffTF

If it is clearly stated that the interest is paid on maturity that is not an issue. In the case of QIB, they did not say that, but there was no cash statement or interest statement for year 1. Raisin just repeated the unhelpful information that QIB had given when I contacted them. In that case, I decided that all the interest was paid on maturity. Otherwise, as with masonic, I assume that if the interest is credited to my account annually, that it is taxable annually. I have been doing that for many years, without HMRC raising an issue. I currently have ten term accounts in a roughly six monthly ladder. So far, paying the tax on maturity would have been slightly favourable for me, if I had done it consistently. Nonetheless, it is more important for me that the interest is spread evenly, so I do not get pushed into higher rate tax in a year when lots of interest payments arrive. Gilts are now more attractive for me than these accounts. Hopefully, this issue will become a thing of the past, as far as I am concerned.

EthicsGradient

GeoffTF said:

If it is clearly stated that the interest is paid on maturity that is not an issue. In the case of QIB, they did not say that, but there was no cash statement or interest statement for year 1. Raisin just repeated the unhelpful information that QIB had given when I contacted them. In that case, I decided that all the interest was paid on maturity. Otherwise, as with masonic, I assume that if the interest is credited to my account annually, that it is taxable annually. I have been doing that for many years, without HMRC raising an issue. I currently have ten term accounts in a roughly six monthly ladder. So far, paying the tax on maturity would have been slightly favourable for me, if I had done it consistently. Nonetheless, it is more important for me that the interest is spread evenly, so I do not get pushed into higher rate tax in a year when lots of interest payments arrive. Gilts are now more attractive for me than these accounts. Hopefully, this issue will become a thing of the past, as far as I am concerned.

OK; by August 2020, QIB had corrected that, and explicitly stated the profit was payable on maturity. I think we're best advising people what HMRC says, rather than how our own tax accounts have turned out after assumptions (without being able to give enough detail for anyone to guess if they'd be in a similar position with HMRC).

GeoffTF

None of us is offering advice here. None of us has looked at the legislation, and none of us has knowledge of internal HMRC procedures. We are just reporting our experiences. There are tax advisers up and down the country.