Interest received on Personal savings over £1000 - Beware HMRC actions

MarkLakes

With interest rates rising it is now much easier to earn more interest than the £1000 Personal Savings Allowance on cash deposits held particularly if you have been following Martin Lewis's guidance to get the best rates possible. 

Everyone should be aware of what is likely to happen when savings providers report to HMRC interest paid on deposits if it is more than £1000.

You will most likely receive a change of Tax Code taking into account any interest received over the £1000 PSA (HMRC will add together the interest on all accounts). It is therefore best to keep an accurate record of what you receive and from whom in any tax year to check any code changes are correct. 

I speak from experience as HMRC has been estimating my 'none taxed' income based on historic information and also assumes you will receive broadly the same amount of interest in subsequent years. In my case the savings accounts had been closed at least 2 years ago when savings were transferred into my wife's name as a non tax payer. Consequently they are trying to take additional tax off me based on savings I no longer have in my own name! Having retired I no longer need to submit a tax return (personal pensions subject simple PAYE) but have to go onto my personal tax account to change the figures online. However, you cannot see what figures savings providers have given (or who they are) to HMRC for any tax year so you have ring up to go through this. 

I was told by an HMRC representative that interest paid on a joint account is allocated to the first named person on the account. If true this would negate £1000 of interest paid split between 2 people and allocated against 2 PSAs.

Over the next 12 months many more people are going to get caught out by this and HMRC in its wisdom is going to be sending out probably thousands of PAYE coding notices which, as is their want, will probably be wrong! 

Of course trying to get through to HMRC is a nightmare and I was on the phone for 2 hours (45 minute wait for call to be answered) trying to sort out my situation. It still hasn't been resolved and I have to write in detailing all savings accounts currently held, when some were closed and how much interest was received so HMRC can cross reference to what they have been told by savings providers.

All a massive faff and I have no confidence they will get it right resulting in me paying more tax than I should.

And savings have been built up from TAXED income so we are all being taxed TWICE if we get more than £1000 interest on these savings! 

calcotti

Sorting out tax for my wife last year I couldn’t match the interest they said they had earned with what I knew she had received. After several letters I established that they had counted some interest payments from the previous tax year again in addition to the actual payments. As you say ‘a massive faff’.

eskbanker

MarkLakes said:

I was told by an HMRC representative that interest paid on a joint account is allocated to the first named person on the account. If true this would negate £1000 of interest paid split between 2 people and allocated against 2 PSAs.

Fortunately not true, as per https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2420

Where interest arises on an account held in the joint names of spouses or civil partners, each will normally be taxable on half of the interest...

MarkLakes said:

And savings have been built up from TAXED income so we are all being taxed TWICE if we get more than £1000 interest on these savings! 

Also not really true - the savings are from taxed income, but aren't themselves taxed a second time, it's only the interest income generated from those savings that would be subject to tax if all allowances are already used.

calcotti

eskbanker said:

, it's only the interest income generated from those savings that would be subject to tax if all allowances are already used.

And can of course be sheltered from tax liability by using an ISA.

[Deleted User]

I speak from experience

I was told by an HMRC representative that interest paid on a joint account is allocated to the first named person on the account. If true this would negate £1000 of interest paid split between 2 people and allocated against 2 PSAs.

I also speak from experience and this is absolutely false. One example of bad HMRC advice does not indicate policy.

SiliconChip

calcotti said:

eskbanker said:

, it's only the interest income generated from those savings that would be subject to tax if all allowances are already used.

And can of course be sheltered from tax liability by using an ISA.

You missed the word "partially" from your post. To earn over £1000 of interest you'd need to have rather more than the £20,000 ISA limit held in savings accounts, and before the current tax year most people had moved out of cash ISAs on the (correct at the time) advice of websites like this one, so few will have been able to use more than one year's limit yet.

calcotti

SiliconChip said:

calcotti said:

eskbanker said:

, it's only the interest income generated from those savings that would be subject to tax if all allowances are already used.

And can of course be sheltered from tax liability by using an ISA.

You missed the word "partially" from your post. To earn over £1000 of interest you'd need to have rather more than the £20,000 ISA limit held in savings accounts, and before the current tax year most people had moved out of cash ISAs on the (correct at the time) advice of websites like this one, so few will have been able to use more than one year's limit yet.

Good point.

2010

AFAIK, when this tax year ends in April, the savings providers inform the HMRC what interest you`ve earned round about Aug/Sept.
If you owe any tax on that interest, HMRC send you a P800 in Oct. saying how much you owe and adjust your code accordingly for the following April to claw the tax back.

badmemory

It was so much easier to just file self assessment with the correct figures.  I am looking forward to the first year HMRC actually gets this correct.  As a bonus it would also be nice if the DWP notified them of the correct state pension figure.  I help a friend file his still & the DWP can't even get his right and he receives it weekly.  How difficult is it to add up the figures from 6th April one year to 5th April the next.

JGB1955

badmemory said:

It was so much easier to just file self assessment with the correct figures.  I am looking forward to the first year HMRC actually gets this correct.  As a bonus it would also be nice if the DWP notified them of the correct state pension figure.  I help a friend file his still & the DWP can't even get his right and he receives it weekly.  How difficult is it to add up the figures from 6th April one year to 5th April the next.

AIUI it's worked out on entitlement, rather than money received. 1 week x one tax year + 51 weeks of following tax year.

Dazed_and_C0nfused

JGB1955 said:

badmemory said:

It was so much easier to just file self assessment with the correct figures.  I am looking forward to the first year HMRC actually gets this correct.  As a bonus it would also be nice if the DWP notified them of the correct state pension figure.  I help a friend file his still & the DWP can't even get his right and he receives it weekly.  How difficult is it to add up the figures from 6th April one year to 5th April the next.

AIUI it's worked out on entitlement, rather than money received. 1 week x one tax year + 51 weeks of following tax year.

Correct.