Tax on savings account interest

wmb194

RL11 said:

[1] The answer seems to be each tax year if you can access the interest but at maturity if you can't.

[2] The only reason I can think that you might want to wait until maturity, is if you need access to the principal & interest in order to be able to afford to pay tax on the interest!

1. Correct.

2. Or if you want to time when it arises e.g., you know you will be retired at the time of maturity and you anticipate that you'll be in a lower income tax bracket.

pecunianonolet

But with interest paid back into the bond it is locked until maturity. So with my 6 month bond rom Nov it would be clear that I get 4 months into 22/23 and 2 months into 23/24 and I can only technically access future interest payments by changing the way it is paid because Atom allows this. Interest already received and paid back into the bond is not accessible until maturity. 

All those acceesible criteria seems to be just smoke and mirror and based on the bits copied in from HMRC board it seems they don't even have a clue either about the law they try to enforece/follow. 

EthicsGradient

wmb194 said:

RL11 said:

[1] The answer seems to be each tax year if you can access the interest but at maturity if you can't.

[2] The only reason I can think that you might want to wait until maturity, is if you need access to the principal & interest in order to be able to afford to pay tax on the interest!

1. Correct.

2. Or if you want to time when it arises e.g., you know you will be retired at the time of maturity and you anticipate that you'll be in a lower income tax bracket.

for (1): That looks correct, in theory. But, if you can't access anything until maturity, since HMRC's instructions to banks etc. are to report all interest "paid or credited" in each tax year, and there's no apparent way for the bank to tell HMRC "but this was credited to an account from which they can't withdraw (principal or any of the interest) until 2025-6" (or whenever), I suspect many banks will report the interest each tax year, and therefore HMRC will count it as arising, and thus taxable, in each tax year.

I have a multi-year bond that I can't change to pay out interest (annually or monthly) to a separate account. But they say they're going to update the balance on each anniversary to show interest paid (and, indeed, they say that if that took you over the £85k limit, they'd pay the excess out to the separate account you nominated to receive the final proceeds; I don't have that much in, however). I suspect they will report the interest to HMRC, but I don't expect I'll get a definitive answer from them until they will have had to report it, in July.

km1500

"therefore HMRC will count it as arising, and thus taxable, in each tax year."

True, but it is your responsibility to then correct your tax affairs and notify HMRC that this interest reported is, in fact, not taxable in this tax year but upon maturity

Do this either by omitting it off your tax return or by contacting them

Thus ends the theory - as for the practice ...

EthicsGradient

km1500 said:

"therefore HMRC will count it as arising, and thus taxable, in each tax year."

True, but it is your responsibility to then correct your tax affairs and notify HMRC that this interest reported is, in fact, not taxable in this tax year but upon maturity

Do this either by omitting it off your tax return or by contacting them

Thus ends the theory - as for the practice ...

Is that really what we should be doing - letting banks and HMRC get it wrong, and then saying, when making our tax return, "your system is broken, here's how it should have been calculated"? If you really think that, I'll try to tell them that on their forum, and see how they react.

RL11

km1500 said:

True, but it is your responsibility to then correct your tax affairs and notify HMRC that this interest reported is, in fact, not taxable in this tax year but upon maturity

I think this is the whole point being made in the thread. How would anyone know there is anything to correct? What government/hmrc legislation clearly states that you must declare the interest at maturity, if you do not have access to the interest that has already been credited, until the bond reaches maturity? I know it's the opinion of a Which reporter - who else?

If a bank gives you a Statement of Interest that shows you got £200 in 2021/22, you will have declared £200 for 2021/22 and so will the bank. You are not going to contact HMRC and tell them that you just read an article in Which that led you to believe the bank reported the wrong figures and you want 2021/22 changed to zero, to ignore anything the bank sends for the next 4 years and you'll give them the correct figure in 2027!

km1500

Yes, that is exactly the  point - you should !

Just because an interest amount appears on eg your bond statement does *** not *** mean it is taxable in that tax year.

wmb194

pecunianonolet said:

But with interest paid back into the bond it is locked until maturity. So with my 6 month bond rom Nov it would be clear that I get 4 months into 22/23 and 2 months into 23/24 and I can only technically access future interest payments by changing the way it is paid because Atom allows this. Interest already received and paid back into the bond is not accessible until maturity. 

All those acceesible criteria seems to be just smoke and mirror and based on the bits copied in from HMRC board it seems they don't even have a clue either about the law they try to enforece/follow. 

It doesn't matter, that was your choice. You could have had it paid away if you'd wanted to so it was accessible.

wmb194

RL11 said:

km1500 said:

True, but it is your responsibility to then correct your tax affairs and notify HMRC that this interest reported is, in fact, not taxable in this tax year but upon maturity

I think this is the whole point being made in the thread. How would anyone know there is anything to correct? What government/hmrc legislation clearly states that you must declare the interest at maturity, if you do not have access to the interest that has already been credited, until the bond reaches maturity? I know it's the opinion of a Which reporter - who else?

If a bank gives you a Statement of Interest that shows you got £200 in 2021/22, you will have declared £200 for 2021/22 and so will the bank. You are not going to contact HMRC and tell them that you just read an article in Which that led you to believe the bank reported the wrong figures and you want 2021/22 changed to zero, to ignore anything the bank sends for the next 4 years and you'll give them the correct figure in 2027!

I cannot find it now but a link to it is sometimes posted on the forum; there was a court case about this. It could be that which set the precedent. The defendant claimed the interest was taxable annually as it was credited to the account and HMRC claimed it was taxable at maturity because, due to the terms of the account, it wasn't accessible during the term. The court sided with HMRC.

RL11

wmb194 said:

I cannot find it now but a link to it is sometimes posted on the forum; there was a court case about this. It could be that which set the precedent. The defendant claimed the interest was taxable annually as it was credited to the account and HMRC claimed it was taxable at maturity because, due to the terms of the account, it wasn't accessible during the term. The court sided with HMRC.

Would love to find that!

This HMRC forum entry initially clarifies things perfectly but when the OP follows up it becomes less clear 

https://community.hmrc.gov.uk/customerforums/pt/4c90d80d-db77-ed11-97b0-00155d9c7b3d