🗳️ ELECTION 2024: THE MSE LEADERS' DEBATE Got a burning question you want us to ask the party leaders ahead of the general election? Post them on our dedicated Forum board where you can see and upvote other users' questions, or submit your suggestions via this form. Please note that the Forum's rules on avoiding general political discussion still apply across all boards.
PSA on 3 year fix
Options
Bevg
Posts: 1 Newbie
I cannot find an answer to my query about 2 3 4 and 5 year fix savings accounts and PSA.
I have a 3 year fixed coming out soon, I have not obviously had any interest from it for the past 3 years until now. So will I have to pay tax when it matures on the whole of the 3 years interest, which if I had had 3 x1year accounts they would have been tax free, does this mean that any savings accounts over more than a 1 year period are going to cost more in tax?
I have a 3 year fixed coming out soon, I have not obviously had any interest from it for the past 3 years until now. So will I have to pay tax when it matures on the whole of the 3 years interest, which if I had had 3 x1year accounts they would have been tax free, does this mean that any savings accounts over more than a 1 year period are going to cost more in tax?
0
Comments
-
Was the interest credited to the account annually even if you couldn't spend it?0
-
PSA isn't tax free, it's taxed income, just at a very low rate of tax!
If you are a high income child benefit claimant you'll soon learn the difference!!0 -
That's not obvious. Some fixed rate accounts pay the interest into an external account monthly or yearly, some add it to the account yearly, and some just add it at the end.I have a 3 year fixed coming out soon, I have not obviously had any interest from it for the past 3 years until now.
If it really did only pay the interest at the end, then yes, otherwise you should have been paying the tax, if any, each year.So will I have to pay tax when it matures on the whole of the 3 years interest,
No, just some of them.which if I had had 3 x1year accounts they would have been tax free, does this mean that any savings accounts over more than a 1 year period are going to cost more in tax?Eco Miser
Saving money for well over half a century0 -
I cannot find an answer to my query about 2 3 4 and 5 year fix savings accounts and PSA.
I have a 3 year fixed coming out soon, I have not obviously had any interest from it for the past 3 years until now. So will I have to pay tax when it matures on the whole of the 3 years interest, which if I had had 3 x1year accounts they would have been tax free, does this mean that any savings accounts over more than a 1 year period are going to cost more in tax?
Interest is taxable, and counts towards your PSA, when it becomes 'available'. The official HMRC line is that;
"Interest has been made available if it is credited to an account on which the account holder is free to draw.”
http://www.telegraph.co.uk/money/ask-a-money-expert/when-does-the-interest-on-my-fixed-rate-bond-contribute-to-my-pe/0 -
Well this turns out to be a can of worms!Interest is taxable, and counts towards your PSA, when it becomes 'available'. The official HMRC line is that;
"Interest has been made available if it is credited to an account on which the account holder is free to draw.”
http://www.telegraph.co.uk/money/ask-a-money-expert/when-does-the-interest-on-my-fixed-rate-bond-contribute-to-my-pe/
I mistakenly believed that the rule for fixed rate accounts was simply "interest should be declared in the tax year it is added to the account." It seems this is wrong in the case of accounts where withdrawals/early closure is not allowed. Apparently HMRC deems that if the money is "not available" it should not be declared until maturity, which has obvious implications for PSA.
Most banks/building societies and NS&I do have an early repayment/closure option in the T&Cs, subject to a penalty or loss of interest, so as far as HMRC is concerned, the interest is "available" and should be declared and is eligible for PSA in the tax year it is credited.
A few (eg. Paragon, NCBS) have a "no withdrawal under any circumstances" clause, so should presumably not be declared until maturity even if interest is credited annually.
But which category applies to accounts with a "hardship clause" (eg. Post Office and Atom)? Presumably if the holder is not in "hardship" the interest is "not available" and so should not be declared until maturity. But my Post Office 2016-17 interest certificate makes no mention of this, and states that interest should be declared to HMRC.
To declare or not to declare? That is the question.0 -
http://forums.moneysavingexpert.com/showthread.php?t=5649589
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/604367/SA150-2017.pdf
See page 3 - if the interest has been credited to the account it has been paid and therefore must be declared?
However, you can write to HMRC and ask for a definitive ruling on your circumstances.
You could send copies of any statements that the deposit taker has provided.0 -
Thanks for the links, xylophone, but now I am even more confused.
Are you saying that the Telegraph article is simply wrong (wouldn't be the first time :mad: ), and that HMRC's definition of the word "available" includes the scenario "OK, you may not be able to actually get hold of the cash but that is your fault for not choosing at the outset to have the interest paid away to another account"?
Granted that would be more logical and less confusing but that does not seem to be the implication of what the HMRC spokesperson is saying:According to HMRC, it does not matter when the interest is credited to your account. Rather, it boils down to when the interest is made available or when it becomes free to withdraw. This is an important feature of fixed term savings accounts as not all permit access.
An HMRC spokesman said: “In general, interest counts towards a saver's PSA when it 'arises' - that is when it is received, or made available to the recipient.
"Interest has been made available if it is credited to an account on which the account holder is free to draw.”0 -
My take on this is to look back to when interest was paid net.
If interest were still paid net, then obviously it would have been net interest that was credited to the Paragon account - therefore the tax would have been deducted in the year of receipt - it could only have been so deducted if it were due and payable.
It would then follow that a higher rate tax payer would have to declare that he had not paid enough tax on that interest and it would be due for the year of receipt.
The only thing that has changed is that interest is now paid gross in the tax year that it arises - the fact that it is paid gross does not seem to me to change the tax year in which the tax liability arises.
And it does seem to me that the fact that the interest income is available to draw monthly or annually is further evidence for the fact that tax is due payable in the year of receipt.
However, I am not HMRC and if in doubt, all the facts should be presented to HMRC and a ruling should be sought in writing?
Another point to ponder - let us suppose that a person is a higher rate tax payer at some point during the term of the bond but ceases so to be - can he then claim that he is not liable for the higher rate tax when the bond matures?0
This discussion has been closed.
Categories
- All Categories
- 10 Election 2024: The MSE Leaders' Debate
- 343.9K Banking & Borrowing
- 250.3K Reduce Debt & Boost Income
- 450K Spending & Discounts
- 236K Work, Benefits & Business
- 609.3K Mortgages, Homes & Bills
- 173.4K Life & Family
- 248.7K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards