Interest on sole accounts that become joint accounts (and vice-versa)

What_time_is_it

My partner and I have various savings accounts. Some in sole names, some in joint names. We recently changed a sole account (my partner's) into a joint account. How is the interest allocated between us for tax purposes?

1. The interest up to the date of changing the account is all in my partner's name, but then becomes jointly held from that date, regardless of when the interest is actually paid.
2. The next interest payment is assumed to all be jointly held, even though most of it was EARNED during the time it was a sole account.
3. Some other way of splitting it?

Basically, does it depends on when the interest is paid, earned, or something else?!

Thanks!

Mark_d

The interest is generally divided equally unless you provide HMRC with evidence that it should be divided some other way.  Why do you have joint accounts when it's important to keep money/interest separate?

When you're married there's less of a case for having finances separate - however we have chosen to keep our accounts separate.  This means that my spouse doesn't have to justify all spending/saving decision and it means that my spouse can treat me to things without it feeling like it's my money being spent on myself.

What_time_is_it

Mark_d said:

The interest is generally divided equally unless you provide HMRC with evidence that it should be divided some other way.  Why do you have joint accounts when it's important to keep money/interest separate?

When you're married there's less of a case for having finances separate - however we have chosen to keep our accounts separate.  This means that my spouse doesn't have to justify all spending/saving decision and it means that my spouse can treat me to things without it feeling like it's my money being spent on myself.

Thanks. We are civil partners, we usually pool all our resources, but we also want to maximise the tax efficiency of our savings.

I guess my question is more about how HRMC interprets the timing of changing savings accounts from being sole to joint or vice-versa. If there are large amount of interest it could make a real difference.

What_time_is_it

Just bumping this to see if anyone knows the answer? 

eskbanker

My understanding is that it's option 2, in that that HMRC consider interest when it 'arises', i.e. at the point it's added to the account, not when it was actually earned.

SAIM2440 - Interest: taxation of interest: when interest arises - HMRC internal manual - GOV.UK (www.gov.uk)

Notepad_Phil

eskbanker said:

My understanding is that it's option 2, in that that HMRC consider interest when it 'arises', i.e. at the point it's added to the account, not when it was actually earned.

SAIM2440 - Interest: taxation of interest: when interest arises - HMRC internal manual - GOV.UK (www.gov.uk)

But, as with fixed interest multi-year accounts where interest is retained in the account, that may not be what is reported by the financial institution to the HMRC. E.g. Mrs Notepad had a easy access monthly interest account onto which I was added in the last couple of months of the tax year, at the end of the year when reporting the interest to the HMRC the bank reported the full year of interest as 50/50 between us, i.e. despite 10 months of the interest being added to the account whilst it was a sole account.

boingy

It's whatever the bank/BS report to HMRC and I very much doubt that they will be apportioning it to take account of the change during the year. On their reporting date they will probably just report 50/50 for a joint account for the whole year.

masonic

Notepad_Phil said:

eskbanker said:

My understanding is that it's option 2, in that that HMRC consider interest when it 'arises', i.e. at the point it's added to the account, not when it was actually earned.

SAIM2440 - Interest: taxation of interest: when interest arises - HMRC internal manual - GOV.UK (www.gov.uk)

But, as with fixed interest multi-year accounts where interest is retained in the account, that may not be what is reported by the financial institution to the HMRC. E.g. Mrs Notepad had a easy access monthly interest account onto which I was added in the last couple of months of the tax year, at the end of the year when reporting the interest to the HMRC the bank reported the full year of interest as 50/50 between us, i.e. despite 10 months of the interest being added to the account whilst it was a sole account.

Presumably that would be a scenario where you could go to HMRC with evidence that it was a sole account when most of that interest arose - if you wanted to.