Would you grab a 2 year bond @ 6.17%?

soulsaver

If  tax impact is a consideration, I'd reiterate my earlier post adding that 5.5% pa ISA (lloyds 1& 2 year available now for example) is equivalent to 9.16%pa unwrapped at HRTax... and it doesn't matter when the interest is paid.

eta last bit

trickydicky14

soulsaver said:

If  tax impact is a consideration, I'd reiterate my earlier post adding that 5.5% pa ISA (lloyds 1& 2 year available now for example) is equivalent to 9.16% unwrapped at Can I ask, what’s the formular for calculating that please.

Can I ask, what’s the formula for calculating that please.

masonic

caper7 said:

kjs31 said:

I think it’s a good option but you need to consider the tax position as all of the interest will be paid in one go. What will your earnings be like in 2 years? Will you be in a higher tax bracket then or will the interest push you into a higher tax bracket? 

I've seen this mentioned recently in another thread.
I've never had a two year bond that paid out just at the end, I've always picked yearly interest paid back into the bond.
So while I can't touch the interest, it's paid out yearly and I've declared it in my tax return as such.
This bond the choice is yearly or monthly interest paid back in or out to another account.
That said, I appreciate the heads up as it's something I've not considered before and clearly must happen with some products.

If you wish to declare interest from a fixed term account across multiple tax years, it is necessary to have interest paid away. Otherwise in HMRC's view it all arises for tax at maturity. I don't believe they have any way to determine this other than information provided by the taxpayer, as the annual reports from savings providers do not include the necessary detail.

soulsaver

trickydicky14 said:

soulsaver said:

If  tax impact is a consideration, I'd reiterate my earlier post adding that 5.5% pa ISA (lloyds 1& 2 year available now for example) is equivalent to 9.16% unwrapped at Can I ask, what’s the formular for calculating that please.

Can I ask, what’s the formula for calculating that please.

To get after-BR-tax back to 'before tax' (gross) divide by 0.8, to get after HR tax back to gross divide by 0.6... is what I use.

caper7

masonic said:

caper7 said:

kjs31 said:

I think it’s a good option but you need to consider the tax position as all of the interest will be paid in one go. What will your earnings be like in 2 years? Will you be in a higher tax bracket then or will the interest push you into a higher tax bracket? 

I've seen this mentioned recently in another thread.
I've never had a two year bond that paid out just at the end, I've always picked yearly interest paid back into the bond.
So while I can't touch the interest, it's paid out yearly and I've declared it in my tax return as such.
This bond the choice is yearly or monthly interest paid back in or out to another account.
That said, I appreciate the heads up as it's something I've not considered before and clearly must happen with some products.

If you wish to declare interest from a fixed term account across multiple tax years, it is necessary to have interest paid away. Otherwise in HMRC's view it all arises for tax at maturity. I don't believe they have any way to determine this other than information provided by the taxpayer, as the annual reports from savings providers do not include the necessary detail.

This is news to me!
I had a 2 year bond with Kent reliance.
October 2020-2022
In April 2021 they sent me an annual statement for the 20/21 tax year showing some interest.
I added that to my 20/21 tax return treating these tax statements as the tax vouchers they used to be when they used to tax savings at source.
Just because it was paid back into the account doesn't change the day the interest was paid. Surely?

caper7

Masonic,

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688?msCorrelationId=9572b6fa-d95e-4d07-b85e-dc040602dd33&instanceId=c5d8c21d2f8376f630cabc60182b2ff2d349eef5ec3dc9194c46a2ac84a416eb&tenantId=ac52f73c-fd1a-4a9a-8e7a-4a248f3139e1&portalId=e1cfc2ea-2de6-4c96-8e99-76600a349358&orgId=13212d7e-6a5d-4598-95ba-4a07545dbb67&environmentId=302efd07-28d9-4d2d-b558-96167951ad6a&portalApp=site-e1cfc2ea-2de6-4c96-8e99-76600a349358-UKw&portalType=Community Forums&portalProductionOrTrialType=Production&licenseType=Dynamics365&portalVersion=9.5.8.6&islandId=101&portalDomain=https://community-origin.hmrc.gov.uk&page=1

I have found this thread on the matter,  having read all 4 pages it does get interesting at the end. It potentially seems that if you have the option to pay interest out of a bond, potentially even if you don't take that option, you still might report interest annually.
Coventry BS advise reporting annually to one of their customers.
It is infuriating and utter insanity that the matter should be so unclear and HMRC so unable to clarify.
I bet many scrupulously honest people are completely unaware of this only declare at maturity situation. 

(I'm not sure why the link is so long and whether it's clickable, I've never posted a link before)

soulsaver

Whatever the rights and wrongs of the policy, you'll find that HMRC will act on what the banks report... HMRC don't know whether banks' reported interest paid is a fixed term paid annually, paid at end of term or paid away - just what the banks declare you were paid in the tax year.

caper7

Yes, that comes up in the long thread I found.
Surely if a bank literally sends you a statement for interest in a tax year that is interest they will equally be reporting to HMRC. I'd imagine getting in trouble with HMRC if you failed to declare that interest.

masonic

Thanks @caper7 I had been following that HMRC discussion thread but hadn't seen the most recent comments. There have been a number of threads trying to extract a clear answer on the issue, but the vast majority of replies are still that interest only arises at the point it can be accessed.

I used to be of the opinion that an option to access, whether taken up or not, constitutes it being "accessible", but threads both here and the HMRC forums have convinced me otherwise.

It would be wrong to conflate banks' annual reporting of interest with taxpayers' reporting obligations. Even those like Zopa who state interest arises only at maturity must report annually.

You can find further discussion including about the HMRC thread at https://forums.moneysavingexpert.com/discussion/6461666/interest-taxed-at-maturity-unfair/p1

Since coming across this problem a while ago, I have ensured any multi year fixes I've taken up have interest paid away. I believe this is the only safe option, especially for those who self assess.

soulsaver

BR tax payer doesn't (have to) declare bank interest unless it exceeds a certain level, £10k (think).
I don't know about the SA requirements, but I'm going to exceed the limit (above) so may have to research it.