Am I over the personal savings allowance?

Etchin

I opened a 1.5 year fixed rate bond in December 2022. This will mature in summer 2024. Although this will straddle the next tax year, the savings portal states the ‘next interest due date’ as the year anniversary of when I opened the account (Dec 23). Will this mean my interest gained will be accounted for in the 23-24 period? Or will it all come out of the April 24-25 tax year?

Dazed_and_C0nfused

If interest is paid in December 2023 and reported to HMRC then it will be taxable in 2023:24.

Have you factored in any potential unused Personal Allowance and the savings starter rate of tax?

A lot of people are unable to benefit from the savings nil rate band (aka PSA).

km1500

Depends on the T and C of the bond.

If the terms and conditions of your bond allow you 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 your bond do not allow access until maturity, the interest would arise and be taxed at that point (ie maturity)

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

Notepad_Phil

km1500 said:

Depends on the T and C of the bond.

If the terms and conditions of your bond allow you 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 your bond do not allow access until maturity, the interest would arise and be taxed at that point (ie maturity)

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

It also depends on how the financial organisation implements their reporting to the HMRC, which do not always seem to fit in with some of the detail within saim2440. I've had plenty of accounts which did not allow access until maturity, but not one of them has reported the interest in one lump at the maturity date.

This subject comes up from time to time on here, if anyone needs to be 100% sure of when the interest is reported then the easiest way is to only open an account which allow you to transfer out monthly or annual payments of the interest and then select the one you prefer.

km1500

The account can report interest each year, but it is not taxable in that tax year if the bond is not accessable until maturity

What I am saying is reporting and when taxable are two different things.

Notepad_Phil

km1500 said:

The account can report interest each year, but it is not taxable in that tax year if the bond is not accessable until maturity

What I am saying is reporting and when taxable are two different things.

In theory perhaps, but in my case at least, the amount of untaxed interest that the HMRC acknowledge has always agreed with the interest reported by the various financial institutions I've used. I.e. the HMRC have never shown the combined amount at the end of the term when I've rung them up or got the paper version, they've always shown the annual interest that my fixed multi-year non accessible bond has reported.

I agree that some bonds will add the full amount of interest at the end, and hence you could run into problems if you were unaware of this, but they are usually completely upfront and tell you that will happen. The ns&I have one (is it the green bond?) and was it zopa or another fairly recent bank that had some fixed term bonds that they told you what they would do.

Albermarle

Notepad_Phil said:

km1500 said:

The account can report interest each year, but it is not taxable in that tax year if the bond is not accessable until maturity

What I am saying is reporting and when taxable are two different things.

In theory perhaps, but in my case at least, the amount of untaxed interest that the HMRC acknowledge has always agreed with the interest reported by the various financial institutions I've used. I.e. the HMRC have never shown the combined amount at the end of the term when I've rung them up or got the paper version, they've always shown the annual interest that my fixed multi-year non accessible bond has reported.

I agree that some bonds will add the full amount of interest at the end, and hence you could run into problems if you were unaware of this, but they are usually completely upfront and tell you that will happen. The ns&I have one (is it the green bond?) and was it zopa or another fairly recent bank that had some fixed term bonds that they told you what they would do.

Which is exactly what I said earlier in the thread. The theory of the HMRC manual, does not seem to apply in practice for most accounts, as discussed in previous threads on the subject. HMRC just tax it as reported by the provider.

RL11

I'm trying hard to get clarity from HMRC via a forum of theirs that I found: https://community.hmrc.gov.uk

It makes no sense to me that the interest is taxed at maturity and not when received.

I have a 5 year bond and receive monthly interest into the same account (I like to see the £40 going in each month!)

For tax year 2022/23 I will receive approx £200, for the following 4 years, I will receive approx £480 and in the final year of maturity approx £280.

I will be given a "Statement of Interest" by the provider, for each tax year, showing those amounts but according to HMRC guidance, I should not report this interest each year.

I will not get a statement after 5 years showing I got £2,400 in 2027 but that is what HMRC want me to report. I will then have to pay tax on £1,400 interest even though I haven't got close to me PSA in any of the previous 5 years!

I'm beginning to wish I hadn't seen the info on the MSE site about paying tax on the whole amount at the end

Obviously I would have declared what the provider said they had paid me each tax year, if I hadn't read about it being handled this other way.

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

Note that example 2 on the HMRC website around having access with penalty, clearly states that “the interest arises and is taxable each year as it is credited” but a response I got from the HMRC forum was that it is taxable when the account is closed and not each year. So even their own examples can't be relied on!

I was also advised that the rules are "legislation" but I can't find anything concrete that states interest has to be taxed at maturity but I can find cases that show it can be taxed at point of receipt:

“it was held to include the ‘swelling of a person’s assets’ even where the person had no immediate right to the income”

"A person may be taxable on interest even if they cannot withdraw and spend the money"

km1500

For me, the HMRC internal manuals trump the HMRC forum !

Just to reiterate - providers of say a 5 yr bond can report annually to HMRC but this means nothing. The individual is responsible for getting their tax return right, and this means declaring the total interest paid after 5 years and not annually.

RL11

km1500 said:

For me, the HMRC internal manuals trump the HMRC forum !

Just to reiterate - providers of say a 5 yr bond can report annually to HMRC but this means nothing. The individual is responsible for getting their tax return right, and this means declaring the total interest paid after 5 years and not annually.

I so wish I hadn't read what it said about this on the MSE site!
I could have gone on happily submitting what my annual Statement of Interest showed - which would agree with what my provider reported to HMRC. Now I have to explain to HMRC that the provider has got the figures wrong and I'll send them some tax in 5 years time!

Dazed_and_C0nfused

RL11 said:

km1500 said:

For me, the HMRC internal manuals trump the HMRC forum !

Just to reiterate - providers of say a 5 yr bond can report annually to HMRC but this means nothing. The individual is responsible for getting their tax return right, and this means declaring the total interest paid after 5 years and not annually.

I so wish I hadn't read what it said about this on the MSE site!
I could have gone on happily submitting what my annual Statement of Interest showed - which would agree with what my provider reported to HMRC. Now I have to explain to HMRC that the provider has got the figures wrong and I'll send them some tax in 5 years time!

You seem to be overcomplicating things.

If you are filing Self Assessment returns you include the correct taxable amount.  You don't need to explain yourself. 

If HMRC disagree then they would have to open an investigation into your return.

If you don't file Self Assessment returns then you don't need to do anything at all.  Unless you get a tax calculation (P800 or PA302) you disagree with.