tax on interest

alexsaver

My father (69) had an old policy for his mortgage which matured in June 2005. He didn't claim his policy until May 2007, so it has been accruing interest of about 3000. This interest was obviously taxable and had tax at 20%(about 600) removed. He received the 2400 in June 2007. I believe he will only be in the 10% rate for 07/08.

When working out how much tax he has to pay, do I treat this 3000 as unearned income (like savings interest) and add it on to his other income (ie: pension) before I deduct his personal allowance?

Now can someone tell me if this 3000 interest, received in June 2007, is treated as income for 2007/08 tax year or is it spread proportionally over the tax years 05/06, 06/07 and 07/08?

dzug

Treat it like savings interest

It will be treated as paid in the year it was received. You may be able to persuade the taxman to do it proportionately, but I doubt it.

Mikeyorks

alexsaver wrote: »

Now can someone tell me if this 3000 interest, received in June 2007, is treated as income for 2007/08 tax year or is it spread proportionally over the tax years 05/06, 06/07 and 07/08?

If it was all added to the account at the point of claim in June 07 (as opposed to being added annually from June 05) ...... then I'm afraid it all counts as 07-08 income. And it sounds very much to be the former .. if the £600 has just been deducted?

The rule on virtually all interest is that the tax is due at the point of payment ... not of accrual. Bit of info here .... have a look at the 'Term Bond' in particular, as most closely representing your problem:-

http://www.hmrc.gov.uk/tdsi/faqs.htm#6