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When you pay tax on savings, just spoken to HMRC
Comments
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The legislation doesn’t seem that complicated at first sight -
ITTOIA05/S370 provides that tax is charged on the full amount of interest arising in the tax year. This means that a person receiving interest cannot set off any interest payable, bank charges or similar amounts against sums chargeable under ITTOIA05/S369.
Interest ‘arises’ when it is received or made available to the recipient. Interest has been made available if it is credited to an account on which the account holder is free to draw. For additional guidance on when interest arises see SAIM2400.
So - if it’s paid to you it’s taxable then. If it’s credited to an account you can draw from, it’s taxable then. Anything else, it’s taxable when you can get your hands on it.
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MSE_Ben_T said:Ozzig said:The MSE article here
https://www.moneysavingexpert.com/savings/personal-savings-allowance/
Advises " You're taxed on savings interest in the tax year you can access it "
Just called HMRC and the advisor confirmed the tax is due when they receive notification from the bank you're been paid it, not when you have access to it.
A 5-year bond would require tax to be paid in each of the five years, on each year's accrued interest.
I know from previously asking here and on the HMRC forum that I will get answers that both contradict and support this, from forum users and HMRC admins.
So, can we ask the MSE team if it is possible to use their might to get formal clarification?
Or at least re-word the article in the meantime?
Personally, I'd rather the former, ideally before I submit my SA for 22-23
But the latter is potentially misleading as it stands.
I suspect there will be a million and one potential replies to my thread all anecdotally proving the advisor I spoke to as being right or wrong and explaining how individuals have only declared accessible interest or have always declared paid interest.
Just responding to requests for a confirmation of the validity of the info on our PSA page / of HMRC's official line on this matter. We have been in contact with HMRC multiple times on this issue in the past, and again in this instance, and they have always confirmed that our advice is correct, and that it's when you can 'access' your interest that matters.
Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Hope this helps,
MSE Ben
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MSE_Ben_T said:Good afternoon,
Just responding to requests for a confirmation of the validity of the info on our PSA page / of HMRC's official line on this matter. We have been in contact with HMRC multiple times on this issue in the past, and again in this instance, and they have always confirmed that our advice is correct, and that it's when you can 'access' your interest that matters.
Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Hope this helps,
MSE Ben
I've had a couple of bonds in recent times for periods of more than 1 year and in both cases, the banks have provided me with an annual interest summary for tax purposes that include the interest when it was added to the account, despite the fact that it wasn't accessible. If it's this same information that the banks provide to HMRC, then HMRC presumably aren't going to know that it wasn't accessible and will therefore include it in your tax calculation for that year ?3 -
in the above what the taxpayer is 'supposed' to do is correct the situation by declaring no interest received in that tax year, and when the bond matures declare 'n' years worth.
the fact about banks and building societies reporting interest annually is a bit of a red herring because all the tax payer has to do is put in a correct tax return or if they don't do self-assessment then notify the revenue of the proper situation
despite the fact that it seems to be obeyed more in the breach than the observance there is no doubt that interest is only taxable when it arises. in fact this is a subset of the general tax rule which states that your only owe tax on something when you can access it - for example capital gains tax you are not taxed on a gain until basically you sell the asset1 -
refluxer said:
I've had a couple of bonds in recent times for periods of more than 1 year and in both cases, the banks have provided me with an annual interest summary for tax purposes that include the interest when it was added to the account, despite the fact that it wasn't accessible. If it's this same information that the banks provide to HMRC, then HMRC presumably aren't going to know that it wasn't accessible and will therefore include it in your tax calculation for that year ?Don't wait for your ship to come in, swim out to it.0 -
littlemissbossy said:refluxer said:
I've had a couple of bonds in recent times for periods of more than 1 year and in both cases, the banks have provided me with an annual interest summary for tax purposes that include the interest when it was added to the account, despite the fact that it wasn't accessible. If it's this same information that the banks provide to HMRC, then HMRC presumably aren't going to know that it wasn't accessible and will therefore include it in your tax calculation for that year ?0 -
MSE_Ben_T said:Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Anyone know if the written rule has always been this way, i.e. even before the rates dropped? Or is it a recent amendment?0 -
intalex said:MSE_Ben_T said:Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Anyone know if the written rule has always been this way, i.e. even before the rates dropped? Or is it a recent amendment?
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MSE_Ben_T said:Ozzig said:The MSE article here
https://www.moneysavingexpert.com/savings/personal-savings-allowance/
Advises " You're taxed on savings interest in the tax year you can access it "
Just called HMRC and the advisor confirmed the tax is due when they receive notification from the bank you're been paid it, not when you have access to it.
A 5-year bond would require tax to be paid in each of the five years, on each year's accrued interest.
I know from previously asking here and on the HMRC forum that I will get answers that both contradict and support this, from forum users and HMRC admins.
So, can we ask the MSE team if it is possible to use their might to get formal clarification?
Or at least re-word the article in the meantime?
Personally, I'd rather the former, ideally before I submit my SA for 22-23
But the latter is potentially misleading as it stands.
I suspect there will be a million and one potential replies to my thread all anecdotally proving the advisor I spoke to as being right or wrong and explaining how individuals have only declared accessible interest or have always declared paid interest.
Just responding to requests for a confirmation of the validity of the info on our PSA page / of HMRC's official line on this matter. We have been in contact with HMRC multiple times on this issue in the past, and again in this instance, and they have always confirmed that our advice is correct, and that it's when you can 'access' your interest that matters.
Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Hope this helps,
MSE Ben
This may be correct in theory, but isn't correct in practice. I've had my tax code altered since 2017 every year, even though I always have the interest on multi-year bonds added to the sum, and always have multi-year bonds.
HMRC used to have a webpage where you could check the amount reported by the institution each year, and I could see that, for example, on year 1 and year 2 of a 3 year bond the interest was reported to HMRC annually, and I was taxed annually on it, despite not having access to the interest until the end of year 3.
This is the case for every single bond I've had, with around 20 institutions.3 -
Ocelot said:MSE_Ben_T said:Ozzig said:The MSE article here
https://www.moneysavingexpert.com/savings/personal-savings-allowance/
Advises " You're taxed on savings interest in the tax year you can access it "
Just called HMRC and the advisor confirmed the tax is due when they receive notification from the bank you're been paid it, not when you have access to it.
A 5-year bond would require tax to be paid in each of the five years, on each year's accrued interest.
I know from previously asking here and on the HMRC forum that I will get answers that both contradict and support this, from forum users and HMRC admins.
So, can we ask the MSE team if it is possible to use their might to get formal clarification?
Or at least re-word the article in the meantime?
Personally, I'd rather the former, ideally before I submit my SA for 22-23
But the latter is potentially misleading as it stands.
I suspect there will be a million and one potential replies to my thread all anecdotally proving the advisor I spoke to as being right or wrong and explaining how individuals have only declared accessible interest or have always declared paid interest.
Just responding to requests for a confirmation of the validity of the info on our PSA page / of HMRC's official line on this matter. We have been in contact with HMRC multiple times on this issue in the past, and again in this instance, and they have always confirmed that our advice is correct, and that it's when you can 'access' your interest that matters.
Therefore, if you have a fixed-rate savings account longer than a year, and choose for interest to be paid at maturity (or if you choose to have monthly or annual interest paid into the fixed savings account), then all that interest is counted towards the final year's PSA.
Hope this helps,
MSE Ben
This may be correct in theory, but isn't correct in practice. I've had my tax code altered since 2017 every year, even though I always have the interest on multi-year bonds added to the sum, and always have multi-year bonds.
HMRC used to have a webpage where you could check the amount reported by the institution each year, and I could see that, for example, on year 1 and year 2 of a 3 year bond the interest was reported to HMRC annually, and I was taxed annually on it, despite not having access to the interest until the end of year 3.
This is the case for every single bond I've had, with around 20 institutions.That's because banks must report interest credited, not arising. HMRC cannot know from the information they receive from savings institutions that the interest isn't taxable in that year. They rely on taxpayers to correct the record, while simultaneously stating there is nothing for taxpayers to do if they haven't been asked to submit a tax return.In practice, many will be underpaying tax as a result of this, through no fault of their own.
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