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Post by bracknellboy on Aug 11, 2023 10:19:39 GMT
Looking for assistance from my fellow forumites. Case: fixed term savings accounts, say 1 year or 2 year. Due to changing tax situation (changing income situation) you want to take interest monthly rather than at maturity, so that a good portion falls into early tax year not lumped at maturity. So far so good.
If that interest is paid out of the account into say your current account, then there is no doubt that 'monthly interest' will mean monthly from a tax perspective. However, if it is paid into the fixed term account rather than out of the account, does that for tax purposes still constitue falling into the tax year in which it is credited, or does it still fall into the tax period of maturity? I can see that in this case it is only nominally monthly because you don't actually receive it until maturity.
[MSE is ambiguous on this in my view]
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keitha
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Post by keitha on Aug 11, 2023 10:28:36 GMT
IMHO it would fall in the tax year in which it was paid.
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Post by bracknellboy on Aug 11, 2023 10:30:29 GMT
Ok, a bit of googling led me to an HMRC Customer Forum (didn't know this existed...) where this example was being discussed. It in turn pointed me to SAIM2400 - Interest: taxation of interest: the tax chargeand the conclusion of both the discussion and that would appear to be that the tax chargeable event occurs at the point that you gain access to/benefit from the interest. Therefore if interest is paid monthly but into the term account then assuming you can't actually access the interest then the taxable event is at maturity. So to achieve my original intent, the interest needs to be 'paid away/out'. The thread in the HMRC forum, for those interested (pun intended): community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688Interesting that this has HMRC people responding in the forum, so potentially a really good resource (the forum I mean, not that thread specifically). |
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jonno
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nil satis nisi optimum
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Post by jonno on Aug 11, 2023 10:40:00 GMT
Looking for assistance from my fellow forumites. Case: fixed term savings accounts, say 1 year or 2 year. Due to changing tax situation (changing income situation) you want to take interest monthly rather than at maturity, so that a good portion falls into early tax year not lumped at maturity. So far so good. If that interest is paid out of the account into say your current account, then there is no doubt that 'monthly interest' will mean monthly from a tax perspective. However, if it is paid into the fixed term account rather than out of the account, does that for tax purposes still constitue falling into the tax year in which it is credited, or does it still fall into the tax period of maturity? I can see that in this case it is only nominally monthly because you don't actually receive it until maturity. [MSE is ambiguous on this in my view] Not sure I fully understand your premise "if it is paid into the fixed term account". Do you mean retained and "rolled up" and then paid at maturity? If so, my understanding is that it will become taxable when you actually receive it out of the account i.e. after one/two years or however long the fixed term is. It is not treated as taxable income until it is paid out to you. Crossed with above.
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spiral
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Post by spiral on Aug 11, 2023 12:09:13 GMT
Interesting read. I must admit I concur with the posters there that seem to say its at odds with the annual certificate of interest provided by the organisations. It must also be a pita for HMRC if the banks are telling them that Mr Y received £X interest only for them to not go on and declare it because it's "inaccessible".
This also has ramifications for notice accounts if the interest is compounded.
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jonno
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Post by jonno on Aug 11, 2023 12:30:31 GMT
Interesting read. I must admit I concur with the posters there that seem to say its at odds with the annual certificate of interest provided by the organisations. It must also be a pita for HMRC if the banks are telling them that Mr Y received £X interest only for them to not go on and declare it because it's "inaccessible".
This also has ramifications for notice accounts if the interest is compounded.
Two things; firstly I'm not sure that providers issue annual certificates to HMRC re fixed term products (I do stand to be corrected); Secondly, to get around the problem, I have always elected to receive interest monthly and in order to retain an element of the benefit of compounding, I reinvest the income into another account paying a decent rate. A bit of a faff but better than being lumbered with a large tax bill x years down the line.
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Post by moonraker on Aug 11, 2023 14:25:25 GMT
"When ignorance is bliss, 'tis folly to be wise." (Thomas Gray, "Ode on a Distant Prospect of Eton College.")
I've always declared my annual interest every year, whether I can access it or not, whether it's taken out every year or rolled over. (My instructions vary.) One exception is NS & I 3-year fixed bonds and a minor bank which make it clear that all the interest on a two- or three-year bond is added only on maturity.
The HMRC guidance makes things a little complicated when it comes to my existing investments, where already I've paid tax on the first, second, third years or whatever. I'll just let them run their turn, continuing to declare the interest annually and hope I survive that long - with a note on my financial records admitting what I've been doing so those handling my probate know the situation.
As to future investments, to keep things simple I'll specify that interest be rolled over to maturity.
(Just checked: apart from several fixed-rates maturing this year, there's two in 2025 and one in 2026 ...)
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