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When you pay tax on savings, just spoken to HMRC

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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.



  • Ozzig
    Ozzig Posts: 367 Forumite
    Third Anniversary 100 Posts Name Dropper
    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 :smiley:
    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.
    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
    Hi Ben thanks for the confirmation, did they mention anything about cascading that down to all their advisors?



  • refluxer
    refluxer Posts: 3,186 Forumite
    1,000 Posts Fourth Anniversary Photogenic Name Dropper
    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
    As far as I can make out, the problem appears to be that many banks report the interest annually to HMRC regardless, so this will be the information which HMRC use in their tax calculations each year which would then differ to the information provided by someone submitting a SA if they believe they don't have to declare it until the year it matures. With that in mind, I would imagine that most people in that position would declare it annually despite what the official rules state, especially if they've received a certificate of interest with annual interest included each year ?

    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 ?
  • Olinda99
    Olinda99 Posts: 2,042 Forumite
    1,000 Posts Third Anniversary Name Dropper
    edited 9 November 2023 at 4:33PM
    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 asset
  • 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 ?
    This is exactly what the issue is. 
    Don't wait for your ship to come in, swim out to it.
  • Olinda99
    Olinda99 Posts: 2,042 Forumite
    1,000 Posts Third Anniversary Name Dropper
    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 ?
    This is exactly what the issue is. 
    yes and like any other error the onus is on you to notify HMRC and correct it
  • intalex
    intalex Posts: 985 Forumite
    Part of the Furniture 500 Posts Name Dropper Photogenic
    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.
    Thanks for the update... Goodbye (non-ISA) compounding !!!

    Anyone know if the written rule has always been this way, i.e. even before the rates dropped? Or is it a recent amendment?
  • masonic
    masonic Posts: 27,223 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 9 November 2023 at 8:29PM
    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.
    Thanks for the update... Goodbye (non-ISA) compounding !!!

    Anyone know if the written rule has always been this way, i.e. even before the rates dropped? Or is it a recent amendment?
    There hasn't been any recent amendment to this part of the legislation. The rule around interest not being taxable until it arises comes from the Income Tax (Trading and Other Income) Act 2005, section 370. I believe this was largely a rewrite of earlier legislation, so it would have applied before then. The event that threw an additional spanner in the works was not rates changing, it was the end of income tax being deducted at source and introduction of a nil-rate band (Personal Savings Allowance), meaning that different amounts of tax were more likely depending on when interest arises, and that basic rate taxpayers had to pay it (normally) from their other income.
  • Ocelot
    Ocelot Posts: 627 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    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 :smiley:
    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.
    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

    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.
  • masonic
    masonic Posts: 27,223 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 9 November 2023 at 9:24PM
    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 :smiley:
    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.
    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

    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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