Tax on interest not received because of early closure penalty

Oldhag2

I've just joined MSE and this is my first post.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

amanda1024

I’m not a tax expert, but surely you’d only put interest you actually received on the tax return, not hypothetical interest 

dunstonh

t.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

Your building society issues a certificate of interest paid (typically arrives around May).  That shows the interest and any tax deducted (usually nil nowadays).  Those are the figures used.

You never use hypothetical figures.  You use actual.

wmb194

Oldhag2 said:

I've just joined MSE and this is my first post.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

Or is it showing interest you DID receive but then you've been charged a penalty? I.e. you received it but then paid a penalty to withdraw it early. These penalties aren't tax deductible.

subjecttocontract

That's interesting.
I wonder how many people take the interest figure minus the penalty and include the result on their SA ?

Notepad_Phil

Oldhag2 said:

I've just joined MSE and this is my first post.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

Most of the accounts that allow you to close them early and pay a penalty are ISA accounts which you don't actually report the interest on, so are you sure that you do have to do that with your account.

Reed_Richards

wmb194 said:

Oldhag2 said:

I've just joined MSE and this is my first post.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

Or is it showing interest you DID receive but then you've been charged a penalty? I.e. you received it but then paid a penalty to withdraw it early. These penalties aren't tax deductible.

I disagree.  The penalty you pay is always (AFAIK) a loss-of-interest penalty.  You pay tax on the interest you actually received, not the interest you would have received if you had not made an early closure.

subjecttocontract

Now I don't know who to believe.
You mean there are people who post incorrect information on here ?

intalex

Reed_Richards said:

I disagree.  The penalty you pay is always (AFAIK) a loss-of-interest penalty.  You pay tax on the interest you actually received, not the interest you would have received if you had not made an early closure.

This does sound logical, almost to the tune of earning a lower interest rate on:
- limited access accounts when you exceed the withdrawal count threshold, or
- certain regular savers (e.g. HSBC) when you terminate them early

Eco_Miser

Reed_Richards said:

wmb194 said:

Oldhag2 said:

I've just joined MSE and this is my first post.  I am doing my tax return and have seen that a building society (on the end of year statement) showed the interest that I WOULD have received had I not closed the account and paid the early closure loss of interest penalty.  If I declare this number I will end up paying tax on interest that I have not received!  Has anyone experienced this?

Or is it showing interest you DID receive but then you've been charged a penalty? I.e. you received it but then paid a penalty to withdraw it early. These penalties aren't tax deductible.

I disagree.  The penalty you pay is always (AFAIK) a loss-of-interest penalty.  You pay tax on the interest you actually received, not the interest you would have received if you had not made an early closure.

I disagree. The penalty is the equivalent of so many days interest.

You receive the full interest up to the date of withdrawal (which is less than if you had continued to hold to maturity), and include that figure in your tax calculation.

The amount you get back is what you put in, less the penalty, plus the interest to day of closure.  This may mean that you pay tax on interest you apparently never received, as it was swallowed by the penalty.

subjecttocontract

Ho, ho, ho .....if that's the case I suspect that is not widely known and a I also suspect that a very large number of savers who expose themselves to these penalties don't accurately declare their interest payments ! Another anomaly in the tax process. Let's make a list:
1. Interest payments on multi year accounts......Nobody really knows what's going on here.
2. Interest declaration on platform account providers (e.g. Raisin)...... HMRC not advised automatically.
3. Penalty on early termination .......possibly dealt with incorrectly.
We almost need another forum just for tax matters