Interest taxed at maturity unfair

Notepad_Phil

Ocelot said:

A few months ago the received wisdom (general consensus) on this board was that a providers would report your interest to the HMRC if an option was originally offered to pay away the interest to another account, even if you rejected this offer.

I'm unsure of the veracity of this view, but I do know that all my fixed rate accounts report every year and have done so since 2016.

I'm of the same opinion.

I think that when people ask questions of the HMRC and simply say that their account doesn't allow them access to their interest at maturity, then actually they are wrong in their assertion and should have said that their account did allow them access but they chose not to take it.

It does seem to me unlikely (but obviously not impossible) that umpteen, presumably experienced and qualified bank and building society staff would all have this wrong and incorrectly report tax annually when they shouldn't.

2stixoftwixes

There is a long thread about this subject located here

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688

HMRC keeps repeating that fixed savings interest will be taxed at maturity, however, they seem to be totally missing the point that banks have to submit annual statements.

Most people when filling out self-assessment etc will use the interest certificate downloaded from the bank which HMRC will have 
Nowhere does it say HMRC adds all the years together to get a final amount.

If interest is taxed at maturity then a bank should send ONE interest statement to HMRC at maturity and end all the confusion

As interest rates are going up, many people are going to be caught out over this, 
£100,000 in a fixed rate 5 year account with monthly interest added to the account and compounded will give around £45,000 in interest
that puts the person nearly into the higher rate bracket

If that same person put the monthly interest in a nominated easy-access account then they would earn £7,000 a year

EthicsGradient

Notepad_Phil said:

Ocelot said:

A few months ago the received wisdom (general consensus) on this board was that a providers would report your interest to the HMRC if an option was originally offered to pay away the interest to another account, even if you rejected this offer.

I'm unsure of the veracity of this view, but I do know that all my fixed rate accounts report every year and have done so since 2016.

I'm of the same opinion.

I think that when people ask questions of the HMRC and simply say that their account doesn't allow them access to their interest at maturity, then actually they are wrong in their assertion and should have said that their account did allow them access but they chose not to take it.

It does seem to me unlikely (but obviously not impossible) that umpteen, presumably experienced and qualified bank and building society staff would all have this wrong and incorrectly report tax annually when they shouldn't.

I don't think HMRC or any bank expects people to remember if they had the choice of getting interest paid out annually while they were applying, but didn't take it. People are just expected to know the conditions of the account they have, not if they had alternatives during an application process. There's no indication anywhere that is their thinking, and it seems ridiculous to me.

It was only 9 months ago that an HRMC employee was under the impression that the interest should be reported every year - see the last post by "HMRC Admin 32" on this page: Interest on savings - Community Forum - GOV.UK (hmrc.gov.uk) . So it won't surprise me if this has been done wrong by many banks and building societies for a few years.

wmb194

2stixoftwixes said:

There is a long thread about this subject located here

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688

HMRC keeps repeating that fixed savings interest will be taxed at maturity, however, they seem to be totally missing the point that banks have to submit annual statements.

Most people when filling out self-assessment etc will use the interest certificate downloaded from the bank which HMRC will have 
Nowhere does it say HMRC adds all the years together to get a final amount.

If interest is taxed at maturity then a bank should send ONE interest statement to HMRC at maturity and end all the confusion

As interest rates are going up, many people are going to be caught out over this, 
£100,000 in a fixed rate 5 year account with monthly interest added to the account and compounded will give around £45,000 in interest
that puts the person nearly into the higher rate bracket

If that same person put the monthly interest in a nominated easy-access account then they would earn £7,000 a year

The best thing is to avoid accounts that create this issue but I suspect HMRC and taxpayers alike will just act on the annual returns and statements financial institutions provide.

What I really want to know, though, is where I can find this 7.7% five year savings bond you speak of!

Delburn

Yes, HMRC have created a complete mess, but I don't think the banks can be blamed.

I think banks and building society are obliged to send HMRC "interest paid, or credited".  See here and the guidance another poster linked to:

https://www.legislation.gov.uk/ukdsi/2012/9780111520444/regulation/5

Therefore it appears banks and building societies are obliged to report details of interest credited, regardless of whether the depositor can access it.

Assuming HMRC's view on "interest arising" is accepted as correct (which I am not entirely convinced of), then surely it must follow that HMRC are misusing the "interest paid, or credited" data.

A previous poster on a similar thread suggested they had received tax advice that there were justifications for declaring interest annually, or at maturity, as long as they were consistent.

masonic

2stixoftwixes said:

There is a long thread about this subject located here
https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688

I'm looking forward to EthicsGradient's question being answered.

2stixoftwixes said:

As interest rates are going up, many people are going to be caught out over this,

Many will be at risk of paying a different amount of tax was required. In reality, I don't think many people will get caught out, or ever learn of the issue. They'll either be of the opinion that they should report as the banks do, or they'll consider that the interest wasn't available to them and declare all of the interest at maturity contrary to the interest certificates they have been provided with. Whatever they do, HMRC have no information with which to verify how these accounts operated in practice. There is a potential risk the issue could arise as a side-issue during an audit, but wouldn't the customer provide as evidence a set of statutory certificates of interest suggesting the tax years in which the interest had 'arisen'? 

It is those with an awareness of the situation who are subject to the frustrations of it.

uptdale

In the customer forums HMRC seems to take the position that if an account gives the customer the option of having the interest paid into the fixed term account or having it paid into an accessible account, the tax treatment depends on which choice the customer makes.  The basis of this view is presumably that the interest does not "arise" until it is paid, by which time the customer cannot change his mind as far as that interest payment is concerned.  But the customer might change his mind for future interest payments, and so could manipulate his tax liability as he wants.

It seems to be at least debatable whether HMRC's view expressed in the forums is correct.  It seems inconsistent with the case law set out in the Manual.  It always creates practical problems for both HMRC and taxpayers if the taxpayer reports interest based on HMRC's advice in the forums, but the bank does not.

It is naive for HMRC just to say that the taxpayer should take advice if in doubt as to what interest to report.  All an adviser could do is explain to the client the different positions that the client could take, based on the Manual, the customer forum and the interest reported by the bank, and that whichever position the taxpayer takes should be explained in the white space on the tax return.

Is that really what HMRC wants?

Doctor_Who

I think Delburn has it spot on - it's a complete mess! And one reason why my only multi-year fixed rate account pays interest away quarterly (all others are 1 year fixed rate accounts paying on maturity).

If anyone is interested, these pages from the Gov.uk website explain what banks have to do when reporting savings interest earned to HMRC:

https://www.gov.uk/guidance/bank-and-building-society-interest-returns

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

RL11

Is there anyone (other than HMRC - via their forum responses) think that declaring interest earned at maturity (rather than according to the providers annual certificate) makes any logical sense? 🤔 

km1500

well I suppose it is similar to say capital gains tax where you don't pay each year on your notional increase but only when you realise your gain

also you do not have to put on your tax return what the bank returns as interest to HMRC. So if you know for example that you should not pay tax on reported interest for this account as it is not paid until maturity in say four year's time then simply do not put it on your tax return or delete it if it is already on there pre-filled