Interest taxed at maturity unfair

Dazed_and_C0nfused

Frequentlyhere said:

Well this sounds messy.

So one of my accounts currently is a Vanquis 2 year fix set to pay monthly, with the interest credited to the same savings account. I think I can change this to an external account whenever.

Are we saying that there's a difference in how that income is treated based upon whether it's credited to my savings account or to elsewhere?  Sounds.....like that that shouldn't be the case, if it is!

I cannot see that that would ever be a factor

HMRC's instruction to banks and building societies on how they report taxable interest are available to read on gov.uk but I very much doubt that there is difference in reporting simply because of where the interest is credited.

The fact that it is credited is likely to be the important factor.

Nothing credited until end of the term will mean it's taxed in the tax year the end of the term falls in.  Everything else seems to be getting taxed in the tax year it is credited.

I don't recollect anyone posting differently on here so far.

Frequentlyhere

Thanks Dazed&Confused

"The fact that it is credited is likely to be the important factor." that's exactly the principle I've always run by. Wasn't sure what to think reading this thread in my admittedly not top notch Sunday AM state.

I think HMRC is going to have a notable uptick in volume of work with regards to savings interest on its hands, with lots of people surprised to see they suddenly owe tax and for clarification of any finnickity rules.

Dazed_and_C0nfused

The guidance is here for anyone who wants to delve a bit deeper 🤨

https://www.gov.uk/guidance/how-to-complete-a-bank-and-building-society-interest-return

metrobus

Regarding the Fixed Rate Online Bond there is no mention of”Annualy” in the above Nationwide link , there is in most of the other accounts, suggesting it’s all paid and reported together at the endI on the anniversary.

VNX

Even if interest is paid or credited annually HMRC guidance is that any tax is owned in the tax year in which the interest becomes available to you

masonic

Dazed_and_C0nfused said:

Frequentlyhere said:

Well this sounds messy.

So one of my accounts currently is a Vanquis 2 year fix set to pay monthly, with the interest credited to the same savings account. I think I can change this to an external account whenever.

Are we saying that there's a difference in how that income is treated based upon whether it's credited to my savings account or to elsewhere?  Sounds.....like that that shouldn't be the case, if it is!

I cannot see that that would ever be a factor

HMRC's instruction to banks and building societies on how they report taxable interest are available to read on gov.uk but I very much doubt that there is difference in reporting simply because of where the interest is credited.

The fact that it is credited is likely to be the important factor.

Nothing credited until end of the term will mean it's taxed in the tax year the end of the term falls in.  Everything else seems to be getting taxed in the tax year it is credited.

I don't recollect anyone posting differently on here so far.

In the case of Zopa, interest is credited to fixed rate accounts monthly, but they state in their Summary Information that it is only accessible and considered for tax in the financial year the term ends. See, for example https://savings.zopa.com/onboarding/new/summary?fixedTermSaverOption=depfixed60

Zopa do not provide an option to have interest paid away, unlike most other providers.

masonic

VNX said:

Even if interest is paid or credited annually HMRC guidance is that any tax is owned in the tax year in which the interest becomes available to you

Exercising a choice to have it credited the account doesn't mean it wasn't made available to you.

Swipe

There's nothing you can do about it anyway as it always comes down to how it's reported to HMRC, so it's not really an issue unless you do self assessment. In that case, you may face penalties for any wrong assumptions. That's why I tend to avoid them.

uptdale

VNX said:

Even if interest is paid or credited annually HMRC guidance is that any tax is owned in the tax year in which the interest becomes available to you

Yes, and if you have a choice between having the interest paid away to an external account or credited annually to the fixed term account (so that you can only get it on maturity), that is your choice so either way the interest is available to you when credited.  If on the other hand you do not have that choice, so that the interest can only be paid out on maturity, then it is not available until maturity. 

If you can only gain access to the annual interest before maturity if a penalty is paid for early access, then it is still available to you when credited.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2400

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

EthicsGradient

VNX said:

Even if interest is paid or credited annually HMRC guidance is that any tax is owned in the tax year in which the interest becomes available to you

Yes, that is one part of HMRC guidance. However, their guidance for banks reporting interest that Dazed_and_C0nfused linked to above says

"Gross interest amount

Enter the amount of interest paid or credited to the account for the reported tax year."

and there seems to be no way for the bank to mark it as "this interest has been credited, but is not accessible until a future tax year". So we suspect many banks follow that guidance and report credited interest each year, and that HMRC then assumes it was also accessible.