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  • FIRST POST
    • swanseajack47
    • By swanseajack47 17th May 19, 5:46 PM
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    swanseajack47
    making use of the personal savings allowance
    • #1
    • 17th May 19, 5:46 PM
    making use of the personal savings allowance 17th May 19 at 5:46 PM
    I want to make use of my annual 1000 personal savings tax allowance for 2019-20. I am going to open a one year fixed rate income bond. If I choose for the interest to be annual then obviously that won't do it because the interest will be paid after April 2020. However, if I choose monthly interest, and the interest is added to the investment, will that do it? The provider has said I can have a P60 next April showing how much interest has been added over the remainder of the 2019-20 tax year. Presumably HMRC will accept that as proof of savings income for this financial year?
Page 1
    • surreysaver
    • By surreysaver 17th May 19, 6:16 PM
    • 2,678 Posts
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    surreysaver
    • #2
    • 17th May 19, 6:16 PM
    • #2
    • 17th May 19, 6:16 PM
    A P60 is related to your income from employment, not interest from savings. If you earn monthly interest, then interest earnt this tax year counts towards this year's allowance. Interest earnt next year counts towards next year's allowance.
    I consider myself to be a male feminist. Is that allowed?
    • Terry Towelling
    • By Terry Towelling 17th May 19, 6:43 PM
    • 1,316 Posts
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    Terry Towelling
    • #3
    • 17th May 19, 6:43 PM
    • #3
    • 17th May 19, 6:43 PM
    You don't take advantage of your Personal Savings Allowance (PSA) per se, you just get to keep all of the interest that is paid to you during any given tax year as long as that interest totals less than the PSA. If you are a Basic Rate Taxpayer (BRT) your PSA would be 1000. Do you anticipate being paid any more than 1000 in interest this tax year - or, indeed, in any tax year?

    Something that would be interesting to know is what is your salary. People on incomes less than 17,500 pa (this tax year) can get the benefit of something known as the 'starting rate for savings' before they need to worry about the PSA. That could provide up to 5000 tax-free interest before you even get to start on your PSA.

    You could even put your money into a cash ISA instead - they pay interest that is always tax-free (under current legislation)
    • Dazed and confused
    • By Dazed and confused 17th May 19, 6:50 PM
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    Dazed and confused
    • #4
    • 17th May 19, 6:50 PM
    • #4
    • 17th May 19, 6:50 PM
    Terry T makes a good point.

    People with lower income cannot make use of the Personal Savings Allowance (actually a 0% tax rate).

    Are you working, getting a pension, running a business? If so how much income do you expect to get in 2019:20?
    • Terry Towelling
    • By Terry Towelling 17th May 19, 7:06 PM
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    Terry Towelling
    • #5
    • 17th May 19, 7:06 PM
    • #5
    • 17th May 19, 7:06 PM
    Just read some old posts from OP. Seems they are on pension income, and they may have experienced some confusion over the way HMRC chooses to reduce your Personal Allowance by your expected pension incomes and then allocates any unused PA to cover potential savings interest. That confused me when I first came across it.
    • AnotherJoe
    • By AnotherJoe 17th May 19, 8:10 PM
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    AnotherJoe
    • #6
    • 17th May 19, 8:10 PM
    • #6
    • 17th May 19, 8:10 PM
    This came up a few weeks ago and there was no conclusion
    My thought is that since you can not access that interest because it's fixed term, then you can't put it down. Some others thought that was incorrect and you should . Would like to see a HMRC ruling on this.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Terry Towelling
    • By Terry Towelling 17th May 19, 8:58 PM
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    Terry Towelling
    • #7
    • 17th May 19, 8:58 PM
    • #7
    • 17th May 19, 8:58 PM
    This came up a few weeks ago and there was no conclusion
    My thought is that since you can not access that interest because it's fixed term, then you can't put it down. Some others thought that was incorrect and you should . Would like to see a HMRC ruling on this.
    Originally posted by AnotherJoe
    Are you referring to the tax year to which you allocate your savings interest when an account paying annual interest spans more than one tax year?

    The issue also exists for monthly interest accounts. Should monthly interest paid in April (after 6th) be counted entirely against the new tax year despite the fact that some of it was 'earned' the previous tax year?

    If it were correct to apportion it, surely HMRC would have told savings account providers to do this when they report and when they prepare our interest statements - but they don't. We'd also be receiving confusing interest statements for accounts where none has yet been paid.

    Apportioning would also require Joe Bloggs to do some maths - some of which could be quite complex on monthly-interest accounts if the account had a lot of activity around the tax-year change-over and I can't see that being expected - or happening - or many people being capable of it.
    • Zero Sum
    • By Zero Sum 17th May 19, 10:36 PM
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    Zero Sum
    • #8
    • 17th May 19, 10:36 PM
    • #8
    • 17th May 19, 10:36 PM
    My thinking is, its taxable when its actually received (think VAT works like this)

    Put it this way, Im on an anually salary & paid on 21st. In April what Im taxed is based on the rules in that tax year even though the 1st 5 or 6 days of my pay relates to the previous tax year. There's no adjustment in my April pay to take account of the difference in personal allowance. What I get in April is the same as I get in May & June etc.
    • swanseajack47
    • By swanseajack47 17th May 19, 10:38 PM
    • 10 Posts
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    swanseajack47
    • #9
    • 17th May 19, 10:38 PM
    • #9
    • 17th May 19, 10:38 PM
    Thank you all so much for your helpful comments. To give a bit more detail. I'm retired with both state pension and occupational pension, and am a basic rate taxpyer. I've put the maximum amount allowed in an ISA for 2019-20, but also have some other savings that I could put into a one year fixed income bond and that would generate approximately 1000 gross interest. I have a choice of annual interest being added and paid out at the end of the one year term, or of interest being added to the investment on a monthly basis. I don't appear to have any choice about nominating my own bank a/c into which the interest is paid monthly. ... but the interest can be added monthly to the investment. My question is as to whether HMRC would recognise the total of all the monthly interest income up until the end of the financial year as meeting the conditions for the annual PSA, or whether they would object on the basis that the monthly amounts were being added to the investment and thus could not be accessed by me until the end of the fixed term, and consequently that they would audit the interest as counting towards the 2020-21 PSA, not the 2019-20 PSA. I've rung them to ask, and they were rather equivocal about it .. i.e. they didn't seem to be able to answer the question. They did, however, mention a certificate of unearned income from the provider as being something they might consider, and the provider has indicated that they could supply one upon request. So I'm none the wiser really and am wondering if anyone has an answer. There is the possibility of one provider that will divert monthly income from a fixed term bond into my nominated bank account, however, the rate of return is currently very unappealing. Many thanks again.
    Last edited by swanseajack47; 17-05-2019 at 10:41 PM.
    • LobsterMemory
    • By LobsterMemory 18th May 19, 5:33 AM
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    LobsterMemory
    Very surprised that there doesn't seem to be anything definitive but surely it must work the same way as everything else - dividends, salary, VAT etc is that the tax is chargeable when you receive the amount - and for a fixed bond paid monthly that'll be monthly. Just because you can't get at it doesn't mean it isn't in your account.

    Anyway, why not just go for the yearly option -

    you'll pay no tax this year as you've had no income.
    When the bond matures next year, that is 1000 of interest so no tax
    Then put the principal in a new ISA and any interest earned in the rest of the year is tax exempt
    • LobsterMemory
    • By LobsterMemory 18th May 19, 5:45 AM
    • 134 Posts
    • 83 Thanks
    LobsterMemory
    Then put the principal in a new ISA and any interest earned in the rest of the year is tax exempt
    Originally posted by LobsterMemory
    Oh, and if the principal is more than the ISA limit, chuck it in another fixed term bond that doesn't pay interest until after that tax year
    • MK62
    • By MK62 18th May 19, 7:05 AM
    • 415 Posts
    • 306 Thanks
    MK62
    Thank you all so much for your helpful comments. To give a bit more detail. I'm retired with both state pension and occupational pension, and am a basic rate taxpyer. I've put the maximum amount allowed in an ISA for 2019-20, but also have some other savings that I could put into a one year fixed income bond and that would generate approximately 1000 gross interest. I have a choice of annual interest being added and paid out at the end of the one year term, or of interest being added to the investment on a monthly basis. I don't appear to have any choice about nominating my own bank a/c into which the interest is paid monthly. ... but the interest can be added monthly to the investment. My question is as to whether HMRC would recognise the total of all the monthly interest income up until the end of the financial year as meeting the conditions for the annual PSA, or whether they would object on the basis that the monthly amounts were being added to the investment and thus could not be accessed by me until the end of the fixed term, and consequently that they would audit the interest as counting towards the 2020-21 PSA, not the 2019-20 PSA.
    Originally posted by swanseajack47
    My understanding is that interest counts in the tax year it becomes accessible, and so it would be the second option.
    However, it may come down to exactly what the savings provider actually reports to HMRC. If they do it correctly, and if the interest cannot be accessed, then they should report nothing for this tax year.......however, if the interest can be accessed (even by early redemption, if available), then they should report the interest for this tax year.

    I don't think HMRC are in a position to check every account's term and conditions for interest details, and so they will rely on what they are told by the provider. You may be able to challenge this if it's incorrect, but it's whether you think it's worth the hassle.

    An option could be to just use a 9/10 month fixed rate and play it safe - if you really must have the interest accounted this tax year. You can get 1.8%pa at the moment.....
    • AnotherJoe
    • By AnotherJoe 18th May 19, 8:08 AM
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    AnotherJoe
    Are you referring to the tax year to which you allocate your savings interest when an account paying annual interest spans more than one tax year?

    The issue also exists for monthly interest accounts. Should monthly interest paid in April (after 6th) be counted entirely against the new tax year despite the fact that some of it was 'earned' the previous tax year? I think that's clear, it's only counted when it's paid and the question is, does if it's available make a difference.

    If it were correct to apportion it, surely HMRC would have told savings account providers to do this when they report and when they prepare our interest statements - but they don't. We'd also be receiving confusing interest statements for accounts where none has yet been paid.

    Apportioning would also require Joe Bloggs to do some maths - some of which could be quite complex on monthly-interest accounts if the account had a lot of activity around the tax-year change-over and I can't see that being expected - or happening - or many people being capable of it.
    Originally posted by Terry Towelling
    The examples on the HMRC website and relating that to the "is it accessible " question would seem to indicate it's not the frequency but the availability.
    So if you have a one year bond that pays interest either monthly or at the end, its the same effect , allthough you can see the interest being added with the monthly you cant access it.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Shedman
    • By Shedman 18th May 19, 8:39 AM
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    Shedman
    Useful discusssion which has raised things I wasn't aware about.

    This is from a Telegraph article in April 2016 on the issue:

    >>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.”

    For example, if you have a three-year bond that does not allow any access throughout the term, the interest earned will contribute to your PSA at the end of the term. This would be the case regardless of whether it paid interest annually or on maturity <<

    Must admit that's different to how I always assumed it to be treated and thought each monthly interest would count towards tax on the 'paid' (or credited) basis regardless as to whether it was added to the fixed term account or paid out to a external account. Might have affected some of my planning

    Interesting one would be what about, say, interest paid quarterly on a 90 day account on usual quarter days (ie 31 Dec, 31 March etc). Presumably the Dec interest counts in the current tax year but the March one counts in the next tax year as you can't get it out without 90 days notice so not available until end of June in next tax year?

    UPDATE: Interesting. i have just looked at the Certificate of Interest from Secure Trust Bank on a 90 day account that paid interest quarterly and they have included the 31 March interest in the total interest to be reported for 2018-19.

    And Wyelands Bank have, for a 1 year fixed saver ending in Aug 19 but interest being credited to account monthly, shown the interest credited during period Aug18-5Apr19 on the Section 975 statement annual interest statement so clearly treating monthly interest credited to account as included in that tax year.

    Umm so what is the correct treatment as both these would seem to be wrong from above discussion and reading HMRC manual. Is there an extra statutory concession that we missed perhaps?
    Last edited by Shedman; Yesterday at 9:24 AM. Reason: Update
    • Shedman
    • By Shedman 18th May 19, 8:53 AM
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    Shedman
    It also then begs the question as to what is the point of opting for monthly interest on fixed rate savings, given that banks usually lower the interest slightly for monthly vs annual to give same AER, if the interest only counts at the end of the term anyway?
    Last edited by Shedman; Yesterday at 9:15 AM.
    • Shedman
    • By Shedman 18th May 19, 9:55 AM
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    Shedman
    Here's the link to the Telegraph article in case it helps others. It also goes on to discuss situation where there is a fixed rate bond but you can access early by say paying an interest penalty.

    https://www.telegraph.co.uk/money/ask-a-money-expert/when-does-the-interest-on-my-fixed-rate-bond-contribute-to-my-pe/
    • soulsaver
    • By soulsaver 18th May 19, 10:44 AM
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    soulsaver
    Before the intro of PSA, it's ironic HMRC didn't tell you could claim back the tax that the banks deducted at source during the term of your fixes..?

    And ironic that the banks didn't tell you they'd pay the sum total at the end because you'd be much better off because the gross interest would be compounded over the term of the fixes?
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