Changing how interest is paid

raydun

My wife has a 2 year fixed rate bond with Capital One which matures in August 2009.
It was set up to have the interest paid monthly but she would now like to change to yearly interest for the second year, would this be possible.?
If not she will have to close the bond in August this year and this will lead to a 90 day loss of interest penalty.
My wife is a non taxpayer - and the additional interest earned each month from Aug 08 - April 09 (along with her other savings) exceeds her personal tax allowance.
Wheras if she were able to change to annual interest, it would fall into the next tax year.
When doing her tax calculations we mistakingly assumed that the Capital One Bond was a One year Bond that finished August 08.

Milarky

I doubt that you can change this - it depends on the terms of the product. Certain offshore accounts offer deferred interest if you want it but I doubt it is generally available.

On the taxation point - Why close this particular account early and incur a penalty. She must have other accounts which she could close now and reopen so as to slip receipts into next tax year?

Mikeyorks

It's not a facility (monthly to annually in mid-Bond) I have ever seen advertised ... so you can but ask them?

And if it's only deferring taxation into the following year ... is it worth it? But if the OH becoming taxable is just a 'one off' you need to do the arithmetic. Consider other accounts you could terminate and re-open. Also consider if you do have to suffer a 90 day penalty - whether you can make that up with a better rate elsewhere.

But also throw into the pot ; that if your wife is only slipping over her personal allowances - that the first £2320 over her allowances (provided it is savings income) is only at 10%. Although the 10% tax band is abolished .... there is a new 10% band for savings income only and effective from 2 days ago. It would mean you rescinding any R85s she has in place - and then reclaiming the difference between the 20% that will be deducted at source ... and the element above her allowances that falls into the 10% sector. Bit of a pain for HMRC and customers alike ..... but worth it for the differential?

LittleVoice

Milarky wrote: »

On the taxation point - Why close this particular account early and incur a penalty. She must have other accounts which she could close now and reopen so as to slip receipts into next tax year?

Good thought - but won't this depend on when the interest would normally be paid, given that if an account is closed the capital will be repaid with interest earned to date.

Mikeyorks

You're right ..... as the issue on excess interest arises in 08-09. So to buffer that downwards using an alternative annual account .... would have meant closing it immediately prior to 5th Apr 08 ..... and then re-opening it shortly after 6th Apr 08, in order no interest was paid in 08-09 on that capital.

raydun

Thanks to all above for your valued assistance we will study the various suggestions and decide on the best option, we appreciate your prompt informative responses.