When you pay tax on savings, just spoken to HMRC

EthicsGradient

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.

No, it doesn't. I mean, even the people who designed the reporting mechanism for HMRC didn't seem to realise this, which is why they've told banks to report interest that is credited, whether or not it's accessible. And why the typical person who is not self-assessing is assessed each year, though that's not what HMRC say should happen.

Bobziz

It does seem strange that HMRC wouldn't simply amend the reporting form for financial institutions to require them to state whether interest paid was accessible and include an additional note to accompany the self assessment form. Feels like an easy fix if they were so inclined.

masonic

Bobziz said:

It does seem strange that HMRC wouldn't simply amend the reporting form for financial institutions to require them to state whether interest paid was accessible and include an additional note to accompany the self assessment form. Feels like an easy fix if they were so inclined.

Quite possible that the reporting form change would require an amendment to existing legislation, so would require parliament to get involved. Meanwhile, HMRC seems too busy denying the issue to get the message out.

Ozzig

masonic said:

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).

When I spoke to HMRC to confirm the interest I owed tax on, they advised that the fixed bonds I have no access to until maturity had reported interest so I owed tax on it, I made it clear to the advisor and he accepted I had no access to that interest, he then went on to say as it had been declared I needed to pay tax on it.

I explained on the HMRC forum that the advice did not match his, he was not particularly interested in checking or changing his answer.

In the example below the advisor does not differentiate the two scenarios in the question.

Also from the HMRC help forums ...

Posted 11 months ago by seryozha 

I have read conflicting views on the taxation of interest paid on fixed-term bonds - and am aware of the guidance at SAIM2440. Most bonds credit interest annually and, in many cases, the bond-holder cannot access the funds until maturity, except in exceptional circumstances. In such a case, the interest is apparently taxable in the year of maturity. (See, for example, the NS&I guidance on Guaranteed Growth Bonds.) There is, however, often the option to have the interest paid to another account, in which case it would be taxable when received. What is the position if the terms of a bond give the option of payment to another account but the bond holder elects from the outset to have the interest retained and compounded within the bond? Is the interest all taxable in the year of maturity or does the existence of this option mean that the holder is taxable on the interest in the year it is credited because it was his choice not to have it paid out?

Posted 11 months ago by HMRC Admin 32 

Hi,

As the credit is entered on the account annually, whether it is taken or not, it needs to be reported in the year it is credited.

Thank you.

 

Ayr_Rage

Ozzig said:

masonic said:

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).

When I spoke to HMRC to confirm the interest I owed tax on, they advised that the fixed bonds I have no access to until maturity had reported interest so I owed tax on it, I made it clear to the advisor and he accepted I had no access to that interest, he then went on to say as it had been declared I needed to pay tax on it.

I explained on the HMRC forum that the advice did not match his, he was not particularly interested in checking or changing his answer.

In the example below the advisor does not differentiate the two scenarios in the question.

Also from the HMRC help forums ...

Posted 11 months ago by seryozha 

I have read conflicting views on the taxation of interest paid on fixed-term bonds - and am aware of the guidance at SAIM2440. Most bonds credit interest annually and, in many cases, the bond-holder cannot access the funds until maturity, except in exceptional circumstances. In such a case, the interest is apparently taxable in the year of maturity. (See, for example, the NS&I guidance on Guaranteed Growth Bonds.) There is, however, often the option to have the interest paid to another account, in which case it would be taxable when received. What is the position if the terms of a bond give the option of payment to another account but the bond holder elects from the outset to have the interest retained and compounded within the bond? Is the interest all taxable in the year of maturity or does the existence of this option mean that the holder is taxable on the interest in the year it is credited because it was his choice not to have it paid out?

Posted 11 months ago by HMRC Admin 32 

Hi,

As the credit is entered on the account annually, whether it is taken or not, it needs to be reported in the year it is credited.

Thank you.

 

Exactly what I posted in the first reply to the OP.

If you get a certificate of interest from a company showing ANY interest, whether accessible or not and you need to complete a SA return use those figures and pay the tax as you go.

Ozzig

Ayr_Rage said:

Exactly what I posted in the first reply to the OP.

If you get a certificate of interest from a company showing ANY interest, whether accessible or not and you need to complete a SA return use those figures and pay the tax as you go.

Which contradicts the MSE (confirmed) advice and half of the HMRC advisors.

What if you've been doing it wrong for those 20 years? How many advisors did you speak to along the way?

Shylock_249

Ozzig said:

When I spoke to HMRC to confirm the interest I owed tax on, they advised that the fixed bonds I have no access to until maturity had reported interest so I owed tax on it, I made it clear to the advisor and he accepted I had no access to that interest, he then went on to say as it had been declared I needed to pay tax on it.

What happens if the bank declares "x" after year one, "y" in year two, "z" in year three and when they actually allow you access to the interest they declare the sum of x,y and z?

I'd be interested to know that if you had spoken to a different agent at HMRC whether they would have given you the same answer?

Ozzig

Shylock_249 said:

Ozzig said:

When I spoke to HMRC to confirm the interest I owed tax on, they advised that the fixed bonds I have no access to until maturity had reported interest so I owed tax on it, I made it clear to the advisor and he accepted I had no access to that interest, he then went on to say as it had been declared I needed to pay tax on it.

What happens if the bank declares "x" after year one, "y" in year two, "z" in year three and when they actually allow you access to the interest they declare the sum of x,y and z?

I'd be interested to know that if you had spoken to a different agent at HMRC whether they would have given you the same answer?

It's self-assessment, it would be my responsibility to confirm the amounts and when they arose.

I purposely chose not to call back and found out, partially down to call queue times, but if I got a different answer, should I then call again for best of three ?

Ayr_Rage

Ozzig said:

Ayr_Rage said:

Exactly what I posted in the first reply to the OP.

If you get a certificate of interest from a company showing ANY interest, whether accessible or not and you need to complete a SA return use those figures and pay the tax as you go.

Which contradicts the MSE (confirmed) advice and half of the HMRC advisors.

What if you've been doing it wrong for those 20 years? How many advisors did you speak to along the way?

20 years ago I became a higher rate taxpayer and started SA filing as I had savings and dividend income, I am still in higher rate tax and my interest exceeds the allowance.

I had a verbal agreement with HMRC that they would allow me the standard personal allowance and I would pay the balancing payments every 31st January, this has continued to this day.

That has saved tax code changes and chasing the tail of tax owed.

All I have done is request Section 352/Interest certificates from all the companies that paid me any interest and deducted tax in the earlier days.

Some companies certainly have included inaccessible interest on longer products.

I use these figure on my SA return.

HMRC have never said I am due a refund on inaccessible interest declared before a bond matured.

My balancing payment has always been exactly as expected and not once have HMRC contacted me or amended anything.

Ozzig

Ayr_Rage said:

20 years ago I became a higher rate taxpayer and started SA filing as I had savings and dividend income, I am still in higher rate tax and my interest exceeds the allowance.

I had a verbal agreement with HMRC that they would allow me the standard personal allowance and I would pay the balancing payments every 31st January, this has continued to this day.

That has saved tax code changes and chasing the tail of tax owed.

All I have done is request Section 352/Interest certificates from all the companies that paid me any interest and deducted tax in the earlier days.

Some companies certainly have included inaccessible interest on longer products.

I use these figure on my SA return.

HMRC have never said I am due a refund on inaccessible interest declared before a bond matured.

My balancing payment has always been exactly as expected and not once have HMRC contacted me or amended anything.

It clearly works for you, which is good.
You're declaring interest to match what they have been told by the banks, they have no need to contact you as it matches.

The banks do not declare when the interest will be accessible, so how do HMRC know if you do not tell them ?

I'm happy to follow your lead as long as HMRC, MSE, and everyone else gets the same rules applied.

Are you happy to change your SA if it turns out you should not have declared interest until it is accessible?