When you pay tax on savings, just spoken to HMRC

Ozzig

masonic said:

Ozzig said:

masonic said:

The rules are clear, most of the confusion comes from disbelief that they are what they are. How someone can be compliant with the rules, on the other hand, is a major challenge. HMRC can't even get it right.

If the rules were clear all the HMRC advisors would give the same answer every time, it would match the formal answer MSE Ben received and all the anecdotal evidence posted here would be the same across the board.

I can understand the arguments for taxing them either way, from the treasury and the consumer's perspective.
I'm happy to plan based on whatever the rules are and pay the tax as applicable.

Whilst they are giving two answers to the same question, I want to apply the answer that makes me better off. 

In my experience they have given a consistent answer for all scenarios they have understood. Can you provide evidence that they have told you or another taxpayer that interest should be taxed in a year other than when it arises, or that interest that was credited but inaccessible until maturity arises before then?

Yes, they told MSE Ben's team that, the HMRC forum admins have posted that tax happens on maturity. 

From the HMRC forums ...

Posted 7 months ago by HMRC Admin 32 

Hi,

Bank interest that is paid to you each year into your account, which you can access, is taxable in the year that it arises.  

Where the interest is held in the account, until the account matures, only then will the total sum of interest arising over the whole term, be taxable in the tax year it is paid.

Thank you.

Another one from the HMRC forum ...

If you can access the interest paid then you will declare it on an annual basis.
If the type of account prevents you from accessing the funds until maturity, then all interest is declared in the year of maturity. please refer to:
SAIM2400 - Interest: taxation of interest: the tax charge ‘Interest arising’

Thank you.

refluxer

There's been a lot of talk of what happens with bonds of a duration of more than 1 year, but the problem will be the same for 6-12 month bonds where the interest is paid monthly into the same account and the fixed period spans two tax years, presumably.

For example - I've had accounts with banks like Atom and Ford Money and both include the interest in such accounts in their statement of interest document for the relevant, consecutive tax years (so not the grand total just in the tax year it matures).

Despite the official HMRC line on this matter, for those submitting a self-assessment form - isn't it going to be far easier to submit the same figures to HMRC as the banks do, even if that doesn't conform to the official 'upon maturity/accessible interest' rule ? 

It strikes me that trying to contest and correct the figures is going to be a big headache and a time-consuming hassle for both you HMRC, especially for anyone with multiple fixed rate accounts where this is going to be a problem.

On the subject of contesting figures, I've never had to submit a SA form but I may have to next year so I'm curious... if a bank informs HMRC that you received a big interest payment in a particular tax year which is part-way through your fixed rate duration and you contact HMRC and tell them you technically didn't because it wasn't accessible, are they really going to ignore what the bank says ?

Ozzig

refluxer said:

On the subject of contesting figures, I've never had to submit a SA form but I may have to next year so I'm curious... if a bank informs HMRC that you received a big interest payment in a particular tax year which is part-way through your fixed rate duration and you contact HMRC and tell them you technically didn't because it wasn't accessible, are they really going to ignore what the bank says ?

I did, the agent just offered to send out a letter confirming what had been declared for me, which arrived the following week.

Yes, it would be easier just declaring what the banks had submitted, and if I'd been told that before planning things out, I would have planned differently.

The only potential gotcha there would be is in the event someone put every spare penny into a few fixed-term 5-year bonds, say £250k at 6.2% p.a. they would have paid at least £8k in tax before having any access to their money.

Yes, it would be exceptionally foolish, but I can think of a couple of people who have inherited life-changing amounts who'd see a 6.2% bond and just throw it all in there to keep it safe, not realizing they'd need to find £8k(?)  to pay in tax before they got access to it.

ScarletBea

I hope I'm not adding fuel to the fire, but on multi-year bonds I've noticed 2 types, and that might influence the fact of the banks declaring interest to HMRC or not:

Type 1 - Interest is only added to your account at maturity --> if it's a 2-year bond, the full 2 years' interest will only be visible at the end of the 2 years.
Example of £1,000 at 5%, you only see the extra £100 (or maybe £102.50 if it's cumulative) at the end

Type 2 - Interest is added to your account every year --> if it's a 2-year bond, you can see your balance at the end of the first year increased with the interest of that year, even if you can't touch it, and then the second year interest at the right date (when you can access it)
Example of £1,000 at 5%, you see your balance go up to £1,050 in the extract of year 1, and then £1,102.50 at end of year 2

I think type 1s don't get declared but type 2s do.

masonic

Ozzig said:

masonic said:

Ozzig said:

masonic said:

The rules are clear, most of the confusion comes from disbelief that they are what they are. How someone can be compliant with the rules, on the other hand, is a major challenge. HMRC can't even get it right.

If the rules were clear all the HMRC advisors would give the same answer every time, it would match the formal answer MSE Ben received and all the anecdotal evidence posted here would be the same across the board.

I can understand the arguments for taxing them either way, from the treasury and the consumer's perspective.
I'm happy to plan based on whatever the rules are and pay the tax as applicable.

Whilst they are giving two answers to the same question, I want to apply the answer that makes me better off. 

In my experience they have given a consistent answer for all scenarios they have understood. Can you provide evidence that they have told you or another taxpayer that interest should be taxed in a year other than when it arises, or that interest that was credited but inaccessible until maturity arises before then?

Yes, they told MSE Ben's team that, the HMRC forum admins have posted that tax happens on maturity. 

From the HMRC forums ...

Posted 7 months ago by HMRC Admin 32 

Hi,

Bank interest that is paid to you each year into your account, which you can access, is taxable in the year that it arises.  

Where the interest is held in the account, until the account matures, only then will the total sum of interest arising over the whole term, be taxable in the tax year it is paid.

Thank you.

Another one from the HMRC forum ...

If you can access the interest paid then you will declare it on an annual basis.
If the type of account prevents you from accessing the funds until maturity, then all interest is declared in the year of maturity. please refer to:
SAIM2400 - Interest: taxation of interest: the tax charge ‘Interest arising’

Thank you.

Those statements are both correct and consistent with the rules. MSE Ben's team were told the same. I was asking for examples where they said something different (and it couldn't be attributed to a misunderstanding of the scenario being discussed).

Ozzig said:

Yes, it would be exceptionally foolish, but I can think of a couple of people who have inherited life-changing amounts who'd see a 6.2% bond and just throw it all in there to keep it safe, not realizing they'd need to find £8k(?)  to pay in tax before they got access to it.

If someone was faced with a situation where they were given a tax calculation that's so obviously incorrect (because they were expecting all of the interest to be taxable in a different year), then it rather behoves them to query it with HMRC, which should lead to them disclosing the interest isn't accessible, at which point the problem should be resolved.

masonic

ScarletBea said:

I hope I'm not adding fuel to the fire, but on multi-year bonds I've noticed 2 types, and that might influence the fact of the banks declaring interest to HMRC or not:

Type 1 - Interest is only added to your account at maturity --> if it's a 2-year bond, the full 2 years' interest will only be visible at the end of the 2 years.
Example of £1,000 at 5%, you only see the extra £100 (or maybe £102.50 if it's cumulative) at the end

Type 2 - Interest is added to your account every year --> if it's a 2-year bond, you can see your balance at the end of the first year increased with the interest of that year, even if you can't touch it, and then the second year interest at the right date (when you can access it)
Example of £1,000 at 5%, you see your balance go up to £1,050 in the extract of year 1, and then £1,102.50 at end of year 2

I think type 1s don't get declared but type 2s do.

Yes, that's correct. For Type 2 (which also includes monthly and quarterly interest, e.g. Zopa and Al Rayan respectively), the banks must report interest credited, even if it is inaccessible, so unless corrected, HMRC will wrongly assume it is accessible and treat it as taxable in the wrong year. But there is no confusion that this interest should be taxable at maturity.

To be clear, the Type 1 accounts do have the interest declared, but it is declared correctly for tax (i.e. only at maturity).

Ocelot

How would one correct such an incorrect assumption by HMRC?

masonic

Ocelot said:

How would one correct such an incorrect assumption by HMRC?

It depends on your circumstances, but some options are:

1) Report the correct amount of interest arising in your tax return

2) Call* or write to HMRC with a complete breakdown of your interest arising (i.e. total for each account that credited interest in the relevant tax year)

3) Notify HMRC through your personal tax account

* I am reliably informed by another forumite that the best time to do this is when the lines first open in the morning, and you can generally get straight through

Bobziz

Does it make it clear on the self assessment form or in the notes that you should only declare interest if it is accessible? Having had a quick look, it's not immediately obvious. Thanks.

masonic

Bobziz said:

Does it make it clear on the self assessment form or in the notes that you should only declare interest if it is accessible? Having had a quick look, it's not immediately obvious. Thanks.

Like many vagaries of self-assessment, I don't believe it is a topic that is specifically mentioned in the notes, but it is covered here: https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440