Taxation details for long term Sharia compliant fixed rate bonds

peter021072

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

Dazed_and_C0nfused

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

It will be taxed based on the year(s) the bank report it to HMRC.

Which is highly likely to be each year interest (profit) is credited.

wmb194

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

Technically it depends on when it's 'accessible' so it sounds like the end of the term. In practice though if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

peter021072

wmb194 said:

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

Strictly speaking Sharia accounts don't provide interest, that's partly the point of a Sharia account. Hence, the words 'credited' and 'accessible'. Personally I think the whole 'interest/credit thing is rather silly, it's only terminology, but the revenue might define it by terminology..

eskbanker

peter021072 said:

wmb194 said:

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

Strictly speaking Sharia accounts don't provide interest, that's partly the point of a Sharia account. Hence, the words 'credited' and 'accessible'. Personally I think the whole 'interest/credit thing is rather silly, it's only terminology, but the revenue might define it by terminology..

To recycle a favourite old quote on here, Allah may not regard it as interest, but HMRC will....

Ayr_Rage

I've had several longer term products with Al Rayan.

All of them have had profit credited annually but not accessible until the end.

AR have provided a certificate of profit for each tax year, you need to request them by secure message.

I have been in SA since Day 1 and used those AR details annually on my returns, some being very large sums and HMRC have never come back to me and said "you shouldn't have included that AR profit on your return" so I guess AR reported it when credited.

I have paid the tax for the year the profit was credited.

Dazed_and_C0nfused

Ayr_Rage said:

I've had several longer term products with Al Rayan.

All of them have had profit credited annually but not accessible until the end.

AR have provided a certificate of profit for each tax year, you need to request them by secure message.

I have been in SA since Day 1 and used those AR details annually on my returns, some being very large sums and HMRC have never come back to me and said "you shouldn't have included that AR profit on your return" so I guess AR reported it when credited.

I have paid the tax for the year the profit was credited.

I suspect you have a rather old fashioned view of when HMRC would be interested in investigating your tax return!

wmb194

peter021072 said:

wmb194 said:

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

Strictly speaking Sharia accounts don't provide interest, that's partly the point of a Sharia account. Hence, the words 'credited' and 'accessible'. Personally I think the whole 'interest/credit thing is rather silly, it's only terminology, but the revenue might define it by terminology..

Uh huh. For tax purposes it's classed as interest.

masonic

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

Al Rayan allow profit to be paid away to your linked account. If you choose that option then your interest will be taxable in the tax year it is paid and you won't need to rely on HMRC not finding out about the account not permitting access.

peter021072

wmb194 said:

peter021072 said:

wmb194 said:

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

Strictly speaking Sharia accounts don't provide interest, that's partly the point of a Sharia account. Hence, the words 'credited' and 'accessible'. Personally I think the whole 'interest/credit thing is rather silly, it's only terminology, but the revenue might define it by terminology..

Uh huh. For tax purposes it's classed as interest.

What credit or accessible? That is the question because one is paid every year the other all at the end of the three years. That is important to how much tax might be paid because we have an annual allowance.  Do you understand the point of the question now?  

wmb194

peter021072 said:

wmb194 said:

peter021072 said:

wmb194 said:

peter021072 said:

When would profit be potentially taxed for the 4.6% 3 year fixed Al Rayan bond?  Is it every year or all at the end of the 3 years?  The bond states that profit is credited annually but the profit pay-out is at maturity. Obviously it would be beneficial if it was the former.

if the interest is being credited annually it'll be reported to HMRC annually. HMRC won't know about the accessibility angle so it's up to you...

Strictly speaking Sharia accounts don't provide interest, that's partly the point of a Sharia account. Hence, the words 'credited' and 'accessible'. Personally I think the whole 'interest/credit thing is rather silly, it's only terminology, but the revenue might define it by terminology..

Uh huh. For tax purposes it's classed as interest.

What credit or accessible? That is the question because one is paid every year the other at the end of the three years. That is important to how much tax might be paid because we have an annual allowance.  Do you understand the point of the question now?  

I understood it initially. I think that's clear in my first reply and you need to read something into the ellipsis. 

Masonic's suggestion of seeing whether it can be changed to having the interest paid away annually is a good one as it'll make the situation straightforward.