Tax on fixed savings accounts

Ayr_Rage

@BootcamperHF you obviously haven't bothered to read the comments from HMRC staff on the link posted by @xylophone

@Albermarle having been in the same situation as the OP, on savings that spanned more than one tax year the provider has always been able to provide a certificate of interest for each tax year which I then used to fill in my SA return and pay the tax the following January.

HMRC have never disputed those figures since SA began so I guess the providers do report annually even on long savings accounts.

Albermarle

For info, similar active thread on the Savings board.
Tax on 5 year fixed rate bonds — MoneySavingExpert Forum

fuzzzzy

Krakkkers said:

Well i got through to HMRC this morning and got a breakdown of the interest reported to them and it seems that those 3 and 5 year fixed savings accounts report annual interest to HMHC and it becomes liable to tax straight away, not at the end of the term even though i can't access the interest.

Did you just get the breakdown of interest and assume it was correct, or did you query why it was taxed yearly if the interest was not accessible because you had it compounded to your fixed term account and not paid away?

Krakkkers

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

masonic

Krakkkers said:

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

Unfortunately this is HMRC's mess, whether they are willing to admit it or not. Banks must report what interest has been credited during the tax year, whether it is accessible or not. The savings providers have done nothing wrong. Only interest that arises (is made available to the taxpayer) is taxable. HMRC assumes all interest credited is available to the taxpayer, but this is not the case in a multi-year fixed term where the saver has entered into a binding agreement that prevents them from accessing the interest during the term of the account. In that situation, HMRC would be reliant on the saver to correct them.

TBH if you've made best endeavours to point this out to HMRC, aren't submitting a tax return, and aren't going to be made worse off by the different tax treatment, it may be one to let slide.

fuzzzzy

masonic said:

Krakkkers said:

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

Unfortunately this is HMRC's mess, whether they are willing to admit it or not. Banks must report what interest has been credited during the tax year, whether it is accessible or not. The savings providers have done nothing wrong. Only interest that arises (is made available to the taxpayer) is taxable. HMRC assumes all interest credited is available to the taxpayer, but this is not the case in a multi-year fixed term where the saver has entered into a binding agreement that prevents them from accessing the interest during the term of the account. In that situation, HMRC would be reliant on the saver to correct them.

TBH if you've made best endeavours to point this out to HMRC, aren't submitting a tax return, and aren't going to be made worse off by the different tax treatment, it may be one to let slide.

But in this instance it is to the OP's benefit to have the interest taxed at maturity.

masonic

fuzzzzy said:

masonic said:

Krakkkers said:

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

Unfortunately this is HMRC's mess, whether they are willing to admit it or not. Banks must report what interest has been credited during the tax year, whether it is accessible or not. The savings providers have done nothing wrong. Only interest that arises (is made available to the taxpayer) is taxable. HMRC assumes all interest credited is available to the taxpayer, but this is not the case in a multi-year fixed term where the saver has entered into a binding agreement that prevents them from accessing the interest during the term of the account. In that situation, HMRC would be reliant on the saver to correct them.

TBH if you've made best endeavours to point this out to HMRC, aren't submitting a tax return, and aren't going to be made worse off by the different tax treatment, it may be one to let slide.

But in this instance it is to the OP's benefit to have the interest taxed at maturity.

Then if HMRC won't correct it over the phone, it may be better to write to them with details of the accounts or submit a voluntary tax return.

Albermarle

masonic said:

Krakkkers said:

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

Unfortunately this is HMRC's mess, whether they are willing to admit it or not. Banks must report what interest has been credited during the tax year, whether it is accessible or not. The savings providers have done nothing wrong. Only interest that arises (is made available to the taxpayer) is taxable. HMRC assumes all interest credited is available to the taxpayer, but this is not the case in a multi-year fixed term where the saver has entered into a binding agreement that prevents them from accessing the interest during the term of the account. In that situation, HMRC would be reliant on the saver to correct them.

TBH if you've made best endeavours to point this out to HMRC, aren't submitting a tax return, and aren't going to be made worse off by the different tax treatment, it may be one to let slide.

Regarding your comment I have highlighted in bold italics.
I guess they have to assume this, unless every notification of annual interest credited is accompanied by a note from the provider detailing the T's & C's of the account regarding interest availability.
This is probably impractical, so HMRC are forced to break their own rules as the only practical option?

masonic

Albermarle said:

masonic said:

Krakkkers said:

Yes. I was told that the banks report the interest annually whether you have it paid that way or not and the HMRC have to act on what the banks tell them. I was told i should take it up with the individual banks.

Unfortunately this is HMRC's mess, whether they are willing to admit it or not. Banks must report what interest has been credited during the tax year, whether it is accessible or not. The savings providers have done nothing wrong. Only interest that arises (is made available to the taxpayer) is taxable. HMRC assumes all interest credited is available to the taxpayer, but this is not the case in a multi-year fixed term where the saver has entered into a binding agreement that prevents them from accessing the interest during the term of the account. In that situation, HMRC would be reliant on the saver to correct them.

TBH if you've made best endeavours to point this out to HMRC, aren't submitting a tax return, and aren't going to be made worse off by the different tax treatment, it may be one to let slide.

Regarding your comment I have highlighted in bold italics.
I guess they have to assume this, unless every notification of annual interest credited is accompanied by a note from the provider detailing the T's & C's of the account regarding interest availability.
This is probably impractical, so HMRC are forced to break their own rules as the only practical option?

This is probably the case, yes. It's still not clear to me why they are requesting the information they are (interest credited), rather than asking the banks to return figures for the interest made available to savers, or both. Presumably the primary reason they are gathering this information is for tax calculation purposes, so it seems to me that they are asking the wrong question of the banks. There are examples of banks that clearly communicate to customers that their multi-year fixes pay interest which is all taxable at maturity, but they are required to declare it annually because they add it to the account monthly or annually and would surely not have a problem communicating this to HMRC if the means existed. 

I would have thought it possible to solve this issue. If not, then the very least they should do is have an appreciation that there will be discrepancies and have a willingness to accept corrected figures from taxpayers.

sheramber

The OP has not confirmed whether he can withdraw from the account but pay a penalty or whether any withdrawals are forbidden.

In the case of the former the interest is taxable each year.

It is only if  no withdrawals are possible at all that it is only taxable at the end of the term.

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

Example 2

Sam entered into a five year fixed-term bond on 6 April 2017. The bond credits interest to Sam’s account annually on the 31 December. Sam can only gain access to both the annual interest and the principal in advance of 5 April 2022 if a penalty is paid for early access.

Since the terms and conditions of the bond allow Sam to draw on the funds, although with a penalty, the interest arises and is taxable each year as it is credited.

If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point.