Tax on 5 year fixed rate bonds

intalex

Objectively speaking, isn't it fairest to always allow an option for tax to be applicable in the period that interest arises, given that interest is earned (accrued) as a function of time?

This system of bundling (deferring) everything to maturity may suit some specific circumstances, but that doesn't make it a fair system for everyone.

Savers should be free to opt to have their interest credited into the fix (at least annually) to achieve compounding and the default option should then be to report the interest annually to HMRC albeit in the knowledge that savers may potentially have to pay the related tax even before its corresponding interest income is accessible (i.e. cash flow issue), with an alternative option (requiring an opt-in) allowing deferral to maturity (to address the cash flow issue).

metrobus

 So the consensus of opinion is that HMRC will treat the interest for tax purposes when it’s credited to the account, unless you do a self assessment/ tax return and declare the total multiple years interest for the tax year at maturity?
And if its the latter you run the risk of HMRC including the interest twice, firstly the year credited by the institution , and you declaring it in the maturity year.

bristolleedsfan

metrobus said:

 So the consensus of opinion is that HMRC will treat the interest for tax purposes when it’s credited to the account, unless you do a self assessment/ tax return and declare the total multiple years interest for the tax year at maturity?

Not an opinion, it is what HMRC have said on the subject.

fuzzzzy

bristolleedsfan said:

metrobus said:

 So the consensus of opinion is that HMRC will treat the interest for tax purposes when it’s credited to the account, unless you do a self assessment/ tax return and declare the total multiple years interest for the tax year at maturity?

Not an opinion, it is what HMRC have said on the subject.

Ok so from what HMRC Admin 10 says, if you choose a 5 year fixed rate account which gives you the option of paying the interest away at any time during the fixed rate term then you should declare the interest annually, even if you choose to have the interest compounded.

If you choose a fixed rate account like the OP which gives no option to have the interest paid away then you should declare the interest in the year of maturity.

Bigwheels1111

coyrls said:

Bigwheels1111 said:

Not fight with HMRC 5 years later.

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

I will fight with anyone that wants my money.😜
I had to pay 10k in CGT, 3 years ago.
It still claws at my soul.
I would argue and fight over a penny mistake, somewhere in the house I have a refund cheque from a
Mistake by BT I think it is. A whole 2p.
I used to have it in a frame on the wall.

I was just saying that self reporting would save the hassle in year five and the tax bill.

bristolleedsfan

fuzzzzy said:

bristolleedsfan said:

metrobus said:

 So the consensus of opinion is that HMRC will treat the interest for tax purposes when it’s credited to the account, unless you do a self assessment/ tax return and declare the total multiple years interest for the tax year at maturity?

Not an opinion, it is what HMRC have said on the subject.

Ok so from what HMRC Admin 10 says, if you choose a 5 year fixed rate account which gives you the option of paying the interest away at any time during the fixed rate term then you should declare the interest annually, even if you choose to have the interest compounded.

If you choose a fixed rate account like the OP which gives no option to have the interest paid away then you should declare the interest in the year of maturity.

My reading of what  HMRC Admin 10 said.

Consumers who do not self assessment do not have to declare anything, savings providers report interest that has been credited each year.

Consumers who do complete self assessment (see last two paragraphs of quoted screenshot)

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688?msCorrelationId=710584a7-1184-4a2f-925b-3ac0217813f8&instanceId=eea13f1525f1019b38ae892c8e78058c55940de835fd3e8247accde9b6bc7276&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=4

Albermarle

fuzzzzy said:

bristolleedsfan said:

metrobus said:

 So the consensus of opinion is that HMRC will treat the interest for tax purposes when it’s credited to the account, unless you do a self assessment/ tax return and declare the total multiple years interest for the tax year at maturity?

Not an opinion, it is what HMRC have said on the subject.

Ok so from what HMRC Admin 10 says, if you choose a 5 year fixed rate account which gives you the option of paying the interest away at any time during the fixed rate term then you should declare the interest annually, even if you choose to have the interest compounded.

If you choose a fixed rate account like the OP which gives no option to have the interest paid away then you should declare the interest in the year of maturity.

What about the scenario, where there is no option to be paid annually, but the savings provider adds the interest and reports to HMRC annually. As HMRC will not be aware of the terms of the account, presumably they will just treat it as potentially taxable when it is reported . This assumes you are not filling in a SA.

km1500

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Albermarle

km1500 said:

It is fairly straightforward - the onus is on you to report your tax correctly esch year.

This is irrespective of what the banks and building societies do or do not report annually.

If you have eg a 5 year bond where the interest is added in year 5 then that is what you report to HMRC.

If HMRC mistakenly add the interest each year then you fill in a return each year correcting the mistake

Many people do not fill in tax returns, in fact HMRC actively discourage it if you do not fit their criteria for filling one in . For savings interest there is no need to fill one in unless you earn over £10K interest in a tax year.
In that case you are reliant on how the savings provider reports the interest and how HMRC use that info.

coyrls

Bigwheels1111 said:

coyrls said:

Bigwheels1111 said:

Not fight with HMRC 5 years later.

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

I will fight with anyone that wants my money.😜
I had to pay 10k in CGT, 3 years ago.
It still claws at my soul.
I would argue and fight over a penny mistake, somewhere in the house I have a refund cheque from a
Mistake by BT I think it is. A whole 2p.
I used to have it in a frame on the wall.

I was just saying that self reporting would save the hassle in year five and the tax bill.

What I meant was, has anybody had any experience of HMRC disputing savings interest submissions that either report the interest annually or at the end of the term?  I suspect not.