When you pay tax on savings, just spoken to HMRC

Ozzig

MeteredOut said:

The show is for the masses, not for the intricacies of interest taxation.

I appreciate that, but he made the effort to explain the tax benefits of choosing monthly vs annual interest, with no mention of how longer fixed-term bonds would be taxed.

5 seconds more would be sufficient to add a warning fixed-term bonds longer than one year are taxed on the whole amount earned at maturity so plan ahead.

I also agree that the £5k starting rate would have been worth a mention as well.

eskbanker

Ozzig said:

5 seconds more would be sufficient to add a warning fixed-term bonds longer than one year are taxed on the whole amount earned at maturity so plan ahead.

But it's not as simple as that, as evidenced by the length of this thread and all the others on this subject!

Ozzig

eskbanker said:

Ozzig said:

5 seconds more would be sufficient to add a warning fixed-term bonds longer than one year are taxed on the whole amount earned at maturity so plan ahead.

But it's not as simple as that, as evidenced by the length of this thread and all the others on this subject!

The show was advising people to open, new, better savings accounts, for someone opening a new savings account it would be that simple. They just need to select an account, as best they can, where the tax bill would be better for their circumstances in 2,3,4.... 10 years etc 
 

*assuming that the tax is due when an account matures and funds become accessible .

eskbanker

Ozzig said:

eskbanker said:

Ozzig said:

5 seconds more would be sufficient to add a warning fixed-term bonds longer than one year are taxed on the whole amount earned at maturity so plan ahead.

But it's not as simple as that, as evidenced by the length of this thread and all the others on this subject!

The show was advising people to open, new, better savings accounts, for someone opening a new savings account it would be that simple. They just need to select an account, as best they can, where the tax bill would be better for their circumstances in 2,3,4.... 10 years etc 
 

*assuming that the tax is due when an account matures and funds become accessible .

But your footnote starts to get into the complexity that spawned this thread and all the others, so the whole issue of the variance between theory and practice for taxation of multi-year products is way too nuanced to fit into 5 seconds on a TV show, although to be fair I didn't watch it so don't know the depth to which it discussed taxation of savings accounts.

Ozzig

eskbanker said:

Ozzig said:

eskbanker said:

Ozzig said:

5 seconds more would be sufficient to add a warning fixed-term bonds longer than one year are taxed on the whole amount earned at maturity so plan ahead.

But it's not as simple as that, as evidenced by the length of this thread and all the others on this subject!

The show was advising people to open, new, better savings accounts, for someone opening a new savings account it would be that simple. They just need to select an account, as best they can, where the tax bill would be better for their circumstances in 2,3,4.... 10 years etc 
 

*assuming that the tax is due when an account matures and funds become accessible .

But your footnote starts to get into the complexity that spawned this thread and all the others, so the whole issue of the variance between theory and practice for taxation of multi-year products is way too nuanced to fit into 5 seconds on a TV show, although to be fair I didn't watch it so don't know the depth to which it discussed taxation of savings accounts.

I thought the tax part of the show was a little rushed (par for the course, as the show is usually at breakneck speed.) and focussed on the difference between getting interest paid monthly or yearly, the former being better if you have room in your allowance left in the current year. But that was it.

As the MSE official stance is that tax is due when the fixed bond matures and the funds become accessible, to me, it would have made sense to mention it in the fixed rate bonds tax section as it would aid in selecting which new account to open.

Yes, absolutely the whole thing for existing savers who have all declared different things over different periods, with verbal and written advice contradicting each other on a regular basis, is a mess. 

In fact, while drafting my HMRC letter this week, wanting to make reference to the HMRC forum, I searched for maturity interest and the most recent replies are both at maturity, reinforcing the reply MSE Ben received. 

eskbanker

Ozzig said:
As the MSE official stance is that tax is due when the fixed bond matures and the funds become accessible, to me, it would have made sense to mention it in the fixed rate bonds tax section as it would aid in selecting which new account to open.

Yes, absolutely the whole thing for existing savers who have all declared different things over different periods, with verbal and written advice contradicting each other on a regular basis, is a mess. 

In fact, while drafting my HMRC letter this week, wanting to make reference to the HMRC forum, I searched for maturity interest and the most recent replies are both at maturity, reinforcing the reply MSE Ben received. 

Personally I'm not seeing any evidence that anything has actually changed, so don't see a difference between what existing and new savers are faced with?

MSE are basically saying that HMRC always tell them the same thing, which is consistent with the theory in the manuals and so on, but not the actual practices of some providers - is there any evidence of a change in policy?

Ozzig

eskbanker said:

Ozzig said:
As the MSE official stance is that tax is due when the fixed bond matures and the funds become accessible, to me, it would have made sense to mention it in the fixed rate bonds tax section as it would aid in selecting which new account to open.

Yes, absolutely the whole thing for existing savers who have all declared different things over different periods, with verbal and written advice contradicting each other on a regular basis, is a mess. 

In fact, while drafting my HMRC letter this week, wanting to make reference to the HMRC forum, I searched for maturity interest and the most recent replies are both at maturity, reinforcing the reply MSE Ben received. 

Personally I'm not seeing any evidence that anything has actually changed, so don't see a difference between what existing and new savers are faced with?

MSE are basically saying that HMRC always tell them the same thing, which is consistent with the theory in the manuals and so on, but not the actual practices of some providers - is there any evidence of a change in policy?

Prior to 2022-23 I didn't really pay any attention to savings/interest tax rules. From what I can tell though there hasn't been a change in policy.

Whenever I called HMRC about SA in the past, I never had more than a couple hundred in interest at most so it was never something to bother understanding 

Personally, due to the mixed messaging, I'm writing to them advising details of all the accounts I could not access during the tax period explaining, as per their forum advice (with links, on a letter )  that I am declaring only the interest received that I had access to. I will also include dates of maturity so there's a paper trail for both of us when I need to declare the other interests.

pecunianonolet

Ozzig said:

eskbanker said:

Ozzig said:
As the MSE official stance is that tax is due when the fixed bond matures and the funds become accessible, to me, it would have made sense to mention it in the fixed rate bonds tax section as it would aid in selecting which new account to open.

Yes, absolutely the whole thing for existing savers who have all declared different things over different periods, with verbal and written advice contradicting each other on a regular basis, is a mess. 

In fact, while drafting my HMRC letter this week, wanting to make reference to the HMRC forum, I searched for maturity interest and the most recent replies are both at maturity, reinforcing the reply MSE Ben received. 

Personally I'm not seeing any evidence that anything has actually changed, so don't see a difference between what existing and new savers are faced with?

MSE are basically saying that HMRC always tell them the same thing, which is consistent with the theory in the manuals and so on, but not the actual practices of some providers - is there any evidence of a change in policy?

Prior to 2022-23 I didn't really pay any attention to savings/interest tax rules. From what I can tell though there hasn't been a change in policy.

Whenever I called HMRC about SA in the past, I never had more than a couple hundred in interest at most so it was never something to bother understanding 

Personally, due to the mixed messaging, I'm writing to them advising details of all the accounts I could not access during the tax period explaining, as per their forum advice (with links, on a letter )  that I am declaring only the interest received that I had access to. I will also include dates of maturity so there's a paper trail for both of us when I need to declare the other interests.

Why poking the bear when it leads to your disadvantage? 

1. HMRC provides a set of rules/laws in their documentation on interest income treatment
2. HMRC instructs financial institutions to do reporting, based on HRRC set rules
3. HMRC uses the reported figures as the base for all their calculations

Although final responsibility lies with the individual to make sure the tax return is correct, I would argue that an individual saving money can rightfully trust the bank to report figures correctly as per the rules HMRC set them in the first place. 

HMRC can't expect that everyone who put some money in savings, especially if it is a multi year bond, holds a degree in tax law. Furthermore, the average saver, like 99.9%, do expect that the financial institution, heavily regulated and under constant scrutiny of all things, e.g. money laundering, KYC is reporting correctly as per the rules set by HMRC in the first place. 

If HMRC and ultimately the chancellor would be so concerned about the loss of millions or even billions on underpaid tax from incorrect interest reporting, especially now as it is becoming relevant again with higher rates, they would have had the opportunity to introduce relevant changes at the autumn budget. Either for financial institutions to report in a different way, in the way bonds are offered to customers or by just simply clarifying language so it is crystal clear (also for their own advisors).

If I inquire to my bond provider with questions about reporting and receive an answer, which is technically incorrect (see a few pages earlier about Atom), I would further argue my duty of care making sure my tax is correct has been met. 

For those with over 10k interest income and having to file a self assessment I would make a slight exception and would argue that HMRC could expect you know tax law in more detail, use a tax attorney/advisor or be involved in private banking. Certain levels of wealth come with a different set of responsibilities and duties. The average saver should be able to rely on their bond provider doing the right thing.

Ozzig

Based on their rules as advised by some of their advisors and the formal advice provided to MSE representatives I will be declaring the taxable interest based on what I believe to be correct amounts, those to which I had access. 

For 2022-23 it will be to my advantage so why shouldn't I?

Not everyone who fills in SA does it due to earning over £10k in interest, I certainly do not, probably why I am no expert in tax law.

The main reason I started this thread was inconsistent advice from HMRC, of which, some at the time contradicted the MSE advice.

I asked for confirmation/correction to the MSE savings advice, MSE Ben and the team asked again and got the same answer.

From my own experience, the banks declare all the interest earned in the same way, as mentioned previously, regardless of how the rules apply to the individual. 

I enquired with all my bond providers, and I got differing answers from each, but all declared interest in the same way.
In fact, NS&I declared 10p interest for an account I have no knowledge of, during the 2022-23 period, I only had premium bonds with them.

In my case poking the bear is declaring earned interest based on the bear's guidelines and some of the bear cubs' advice. 

eskbanker

Ozzig said:

The main reason I started this thread was inconsistent advice from HMRC, of which, some at the time contradicted the MSE advice.

I asked for confirmation/correction to the MSE savings advice, MSE Ben and the team asked again and got the same answer.

But nothing said by HMRC or MSE actually resolves that inconsistency between theory and practice, it just reiterates the theory?