Tax on 5 year fixed rate bonds

wmb194

I would suggest it's better to avoid this worry and aggravation and go with a bond thay pays interest away. There are plenty of options.

EthicsGradient

bristolleedsfan said:

masonic said:

bristolleedsfan said:

masonic said:

I think we've established elsewhere that savings providers are required to report interest credited within a tax year, even if it doesn't arise for tax during the tax year in question. But that they expect the taxpayer to inform them of any difference. The only question is under what circumstances an error would be identified.

I haven't seen the issue of what HMRC expects of those not on SA raised in their forums, but there is a general expectation to declare income arising from sources that don't report (correctly) to HMRC.

First paragraph taken from link posted earlier on thread.

"UK banks/building societies are obliged to report interest annually to HMRC so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

Thanks, although I think, like many of the responses from HMRC Admins, this one misses the point that UK banks/building societies are obliged to report all interest credited, not just accessible interest, so what they report can be different from what should be taxable. This was raised in a couple of places in the long thread, but not adequately answered.

So for the mentioned fixed rate bond that you cannot access the interest until maturity, it must be reported annually if credited to the account, but should be treated as taxable at maturity. HMRC have no means to determine this from the banks' annual returns.

This is key point for most savers  "so if you do not file a tax return it is irrelevant for you when you can access your interest and when to declare it"

That's badly worded by the HMRC employee. It's true that, if you don't file a tax return, you don't have to work out when the interest is declared for a fixed term bond you already have - the provider and HMRC will arrive at a conclusion (correct or wrong) between them, and you'll just have to accept what they say. But if you're planning which fixed term bond to start (as, if they can still use a cooling-down period, the thread starter may be), you can ensure you pay the tax yearly, and unambiguously correctly, by picking one that pay the interest each year to an external account.

masonic

As others have suggested, it leaves uncertainty (and issues if you wish to confirm details with HMRC at any stage), but chances are, if you say nothing you can fly under the radar and get your interest taxed annually when it should not be - if that is to your benefit. If you deliberately want interest rolled up to maturity (such as if your income reduces in a later tax year) then you would need to self-declare, as the default assumption is that access is permitted.

As I self-assess (despite having no reason to do so), I can deal with this in my tax return, and although my figures undoubtedly differ from what savings providers report for several years, I've never had it challenged.

Ocelot

All my longer term bonds report interest annually, although I can't access the interest.

VNX

Ocelot said:

All my longer term bonds report interest annually, although I can't access the interest.

I’ve never up to now had bonds of over a year but the HMRC tax situation seems ridiculous.

HMRC say as we all know if you have a say, five year bond that you can’t access that tax is payable in year five. But if most or all? Institutions report interest annually surely HMRC don’t have the time or interest in seeing if it’s accessible etc and must tax you each year?  If so why have the rule of tax paid on maturity at all

Bigwheels1111

I like my interest paid away each year, works well for my situation. An income or reinvesting.

I might get a better rate I might not who knows.

A least this way I can report it via self assessment and keep every penny.

Not fight with HMRC 5 years later.

coyrls

Bigwheels1111 said:

Not fight with HMRC 5 years later.

Has anybody had a fight with HMRC over this issue?  I suspect not.

metrobus

Ocelot said:

All my longer term bonds report interest annually, although I can't access the interest.

Could I ask who are the bonds held with, I have a 3 year bond with Nationwide that I am concerned about.

Swipe

It would be easier if HMRC just made the providers state in the Ts&Cs when the interest is taxable. If NS&I can do it, so should everyone else.

masonic

Swipe said:

It would be easier if HMRC just made the providers state in the Ts&Cs when the interest is taxable. If NS&I can do it, so should everyone else.

That would still put the onus on savers to contact HMRC to inform them of this fact, since it will be reported in the tax year it is credited, whether or not it 'arises' for tax.

The best option would be a harmonisation, whereby interest isn't credited until it becomes accessible. This would mean a single interest payment at maturity when paid into the fix, or the current monthly/annual payments away for those who want to access the income during the term. This would align reporting requirements with reality.