HMRC Attitude Towards Taxing of Fixed Term Savings Accounts

wmb194

https://forums.moneysavingexpert.com/discussion/6659198/hmrc-attitude-towards-taxing-of-fixed-term-savings-accounts

Self Assessment (SA) is the easiest way to ensure this is reported correctly every year.

wmb194

https://forums.moneysavingexpert.com/discussion/comment/81919721#Comment_81919721

If it's even available it's usually along the lines of, 'significant financial hardship' so it's a very high bar.

The test is, 'is the interest accessible?' I'm not facing financial hardship and I can prove this, I don't have a severe illness, I'm unable to withdraw it etc. so no, the interest is not accessible. I think it's straightforward and I'd be comfortable arguing it with HMRC. From the various threads on this subject and HMRC's now defunct Q&A forum, anecdotally it seems HMRC itself is confused about this and gives inconsistent responses.

My suggestion is to avoid this issue altogether by only using bonds that pay interest away monthly or annually.

LITRG

You may find our guidance on the taxation of savings helpful. This links directly to the subheading 'When interest arises for tax purposes.'

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-savings-income#6

If the savings interest figure HMRC have for you is incorrect, our recent article gives some guidance on how to challenge this.

https://www.litrg.org.uk/news/check-savings-interest-figure-included-your-tax-calculation-its-not-always-correct

Hope this helps!

Ocelot

I struggled with this for 10 years, phoning them and writing letters. They were all ignored, or they didn't understand. In the end I gave up, but you might have more luck.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81920002#Comment_81920002

Although in reality having interest taken into account annually, rather than in a big lump at the end, is probably beneficial to significantly more people than it is not.

Plus of course the large majority of people with fixed term accounts, will be oblivious to the situation.

So in complaining about it to HMRC, you are probably in quite a small minority, which could be one reason they do not react.

fuzzzzy

https://forums.moneysavingexpert.com/discussion/comment/81919768#Comment_81919768

Most of the providers I use for fixed term accounts allow you to change your instructions throughout the term as to how your interest is paid, either by changing account details within the online portal or by ringing the provider up. So at any time you can switch from having the interest compounded to the account to having it paid away to a nominated account instead, or vice versa. Some of them also allow changing the interest payment between having it paid monthly or annually regardless of whether it is compounded or paid away.

At an online webinar for self assessment I asked an HMRC agent about the above scenarios and was told that even if I had interest compounded to the account and only accessible at maturity, it would still be deemed as accessible on an annual basis. It seems a bit of a grey area and I am unsure if another agent would have given me the same answer, but that is the guidance I follow.

If I was wanting to pay tax only within a certain tax year then I would make sure I chose an account that specified that interest was only paid at maturity and with no option to change that at any time during the fixed term.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81920051#Comment_81920051

I think that 'advice ' from HMRC is at odds with what Martin/MSE have stated in the past.

Bigwheels1111

I've read these comments for the last 2/3 years on here. No one seems to have found a definitive answer or solution.

I do a self assessment each year, never had the figures questioned.

But keep exacting records.

fuzzzzy

https://forums.moneysavingexpert.com/discussion/comment/81920282#Comment_81920282

Is it? I have not seen any MSE advice on some of these grey areas.

intalex

HMRC will need some way to be assured that all interest is accounted for in terms of taxability, and they never amended BBSI returns process/criteria to reflect the amendment in written rules (when interest started getting paid gross), so the legacy "report what you credit" is the only way that 100% of interest is accounted for one way or another, even if figures end up getting accounted for in the incorrect tax year per the written rule.

No doubt some will win and some will lose in taxes paid, while some may even struggle with the cash flow of paying tax on interest way before the interest itself is accessible.

My guess is that those taking HMRC's lack of enquiry for declaring interest on their SAs per the written rule (thereby not tying up with BBSI returns) may just be a case of HMRC being selective on what to pursue rather than understanding and accepting what that difference specifically relates to. In the year of maturity, I imagine they will be just as unfussed and quietly accept the (presumably large) "overstated" interest declaration.