Tax on interest not received because of early closure penalty

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  • intalex
    intalex Posts: 845 Forumite
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    masonic said:
    We have been discussing Dunmore v McGowan (1978) in that thread in detail, so you'll recall that this case centred on interest being used in this manner. It was ruled in the Court of Appeal that the interest "arose" immediately, because the appellant benefited though reduction of a liability he had. This is now settled in law.
    A saver benefits immediately from interest being credited in that the credited interest starts earning its own interest (unlike interest that is still in "accrued" state) - does that benefit therefore make the credited interest as arisen?
  • masonic
    masonic Posts: 23,514 Forumite
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    intalex said:
    masonic said:
    We have been discussing Dunmore v McGowan (1978) in that thread in detail, so you'll recall that this case centred on interest being used in this manner. It was ruled in the Court of Appeal that the interest "arose" immediately, because the appellant benefited though reduction of a liability he had. This is now settled in law.
    A saver benefits immediately from interest being credited in that the credited interest starts earning its own interest (unlike interest that is still in "accrued" state) - does that benefit therefore make the credited interest as arisen?
    This is probably a discussion for the other thread, but I would suggest that there is no benefit until maturity, when all of the interest arises. However, I'm not aware of any case law testing this.
  • talexuser
    talexuser Posts: 3,500 Forumite
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    eskbanker said:
    You don't have to keep repeating the same theory after it's been so comprehensively debunked!
    It needed no debunking, my first post stated the legal position very clearly, the final paragraph my personal opinion, the rest just a bit of fun.
  • eskbanker
    eskbanker Posts: 31,556 Forumite
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    talexuser said:
    eskbanker said:
    You don't have to keep repeating the same theory after it's been so comprehensively debunked!
    It needed no debunking, my first post stated the legal position very clearly, the final paragraph my personal opinion, the rest just a bit of fun.
    Your first post alleged (no fewer than four times) that you were being taxed on interest income that you didn't receive, which was debunked both then and, unsurprisingly, every time you've repeated that assertion since - are you perhaps adopting the Trumpian tactic that a falsehood repeated often enough might eventually be perceived by some as true?
  • talexuser
    talexuser Posts: 3,500 Forumite
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    Read again, for the thread starter question in my first post I stated that if the penalty was taken from interest you are ok, if from capital you are not. In my case the penalty was from capital, upheld by T&Cs, end of story for the present legal position. My opinion is that this is unfair.

    I would argue that a Building Soc is a savings institution  where the expectation is your captal is safe (up to 85k) and if a headline bullet point says penalty based on X days of interest, the common assumption would be that the penalty would be taken from interest. Declaring capital in small print is borderline unfair with unintented taxation consequences and consumer protection generally tries to avoid being taken in by obscure T&Cs. I admit I hadn't actually thought of the scenario where you close immediately and haven't enough interest to cover the charge of opening the account, but that could be done under a specific early closure term. 

    As for the declaration, obviosly it is wrong, but in my case the amount will be washed out in the rounding errors HMRC apply to my gross figures compared to my spreadsheet calculations of several decimal places which are always therefore a few pounds out every year in a large 5 figure sum, which is ignored. Nowhere do I encourage anyone to do likewise,  my decision with my consequences, probably non existent, just point out the irony of arguing over a few pounds compared to the vast amounts of other fraud that otherwise remains uninvestigated. But then I'm not Nadim Zahawi  :)
  • talexuser
    talexuser Posts: 3,500 Forumite
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    No, that's the whole point of opinions. If all opinions always agreed with the status quo there would be no advancement of the human condition. A building society has the expectation of interest, not capital depreciation, for that you go to the stock market. Interest can be variable, you choose institutions on it, and if penalties are based on interest calculations then you expect an interest reduction. The legalities of non-obvious T&Cs are the stumbling block of the present debate. However from the customers point of view the interest is the difference of what you get out compared to what you put in.
  • masonic
    masonic Posts: 23,514 Forumite
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    edited 17 November 2023 at 5:40PM
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    Strictly you can have an opinion on anything. For example, you could be of the opinion that a £1 coin is worth ten pounds. However, that opinion may not survive an encounter with reality. If you continue to hold it thereafter, then that's when it becomes harmful. Perhaps before then if the opinion causes you to load up on pound coins for a fiver each, thinking you are getting them at a 50% discount.
  • eskbanker
    eskbanker Posts: 31,556 Forumite
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    masonic said:
    Strictly you can have an opinion on anything. For example, you could be of the opinion that a £1 coin is worth ten pounds. However, that opinion may not survive an encounter with reality.
    It wouldn't survive an encounter with this forum either, or any other that I frequent!

    Perhaps there's an appetite for that sort of thinking on QAnon/FOTL sites and the like though....
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