Savings Interest

[Alaric]

The T&Cs say that interest is paid into the account annually and is payable on maturity. That is usual. What is not usual is that I have not received a statement from Raisin showing the first year's interest, which should fall in this tax year.

That seems to have become normal behaviour. Where I have on-line access, I have had to login to my account to find out the interest added. Where it's pass book based, as with an old Building Society account, I've had to visit the Branch to get the update.

HMRC's policing of Self Assessment is somewhat mixed as to whether they insist that providers supply full information or whether they look to catch people out. With shares, there's still the requirement or Brokers to send an annual tax certificate, even when no tax has been deducted at source. Similar requirements don't seem to exist in quite the same form for deposit takers and as for ETFs, the taxpayer does well to even have heard of "Excess Reportable Income", let alone find out what it was and of any significance for tax.

[mc2fool]

The T&Cs say that interest is paid into the account annually and is payable on maturity. That is usual. What is not usual is that I have not received a statement from Raisin showing the first year's interest, which should fall in this tax year.

That seems to have become normal behaviour. Where I have on-line access, I have had to login to my account to find out the interest added.

Getting them online is more or less normal behaviour, but I'm pretty sure all of my savings banks provide tax certificates (online), or as some call them Interest Statement for Tax Year xxxx.

I just quickly checked Marcus, Charter and Paragon and they all do, and I'm sure the others I've used do too ... the only accounts which didn't and where I've had to actually look up (and tot up ) the interest in their transaction history/statements is interest bearing current accounts (not many of those left...).

However, none of my savings accounts aside from the aforementioned NS&I one are more than 1 year accounts, so I can't comment directly on that -- but I'm not sure we can say NS&I has dispensation to go outside the normal tax rules in regards to the Guaranteed Growth Bonds when, in fact, their treatment seems to be exactly as per the HMRC rule identified by the OP.

[mc2fool]

P.S. On the NS&I multi-year Guaranteed Growth Bonds: according to https://www.thisismoney.co.uk/money/saving/article-9566975/Hundreds-thousands-face-new-NS-tax-bill.html:

"Prior to May 1, 2019, savers were allowed to access their money early if they paid a fee equivalent to 90 days' interest. Any tax owed on the interest would be paid each year.

But a rule change two years ago meant savers were no longer allowed to access their money early. And, unbeknown to many savers, this changed how any interest earned is taxed.

Although the interest is still credited to your account each year, it is not taxable until the bond matures. "

So this ties up exactly with the rule specified in the HMRC manual found by the OP; if you can get at the money interest is taxed annually, and if not then it's taxed at maturity. A rule that's not only unbeknown to many savers but unbeknown to all Lemons it seems, including me and the OP.

[GeoffF100]

I have just spoken to my young neighbour, who, as it happens, is a tax adviser for a firm of accountants. The bottom line is do not worry, what I am doing is OK. She says that they just declare tax the on the compounded up interest when the bond matures. Nonetheless, HMRC will accept that I have already paid tax on the earlier years' interest, if I just pay tax on the final year's interest when the bond matures. As long as it tallies they will be happy. In other words, I can either pay tax on the interest payments annually or on maturity. It is all a bit of a mess. She said Skipton Building Society is still issuing statements saying that they have deducted 20% tax.

[daveh]

And more pertinently, isn't the consolidated tax certificate the ultimate authority for interest income?.

It used to be when we had standard rate tax deducted at source. That was a smoking gun. It told me that I had to declare the interest on my tax return. Nowadays, no tax is deducted and there is therefore no tax certificate, but that does not mean that I do not have to declare the interest. Indeed, it seems that I am right to do so, if I get a statement showing it paid into the term account.

When I file my tax return online, I enter the total amount of interest in the box. I believe that there is a worksheet in which I could give a breakdown. Would that reduce the risk of trouble or increase it?

For all my accounts I get a tax certificate with details of interest paid at some point after the end of the tax year. Lloyds send it by post with the first statement after the end of the tax year. YBS have it online and I have to download it, but all my accounts provide the info.

[mc2fool]

I have just spoken to my young neighbour, who, as it happens, is a tax adviser for a firm of accountants. The bottom line is do not worry, what I am doing is OK. She says that they just declare tax the on the compounded up interest when the bond matures. Nonetheless, HMRC will accept that I have already paid tax on the earlier years' interest, if I just pay tax on the final year's interest when the bond matures. As long as it tallies they will be happy.

As long as the total tax paid on it tallies they will be happy, as not only will you have you paid the correct sum amount of tax but you'll have paid a good amount of it years in advance of when it was actually due.

If, OTOH, your marginal rate at maturity is higher than in the previous years, either 'cos your situation changed or 'cos the govt changed income tax rates and/or allowances, then they will be less than happy as you'll have underpaid the correct total amount. Whether they'll be unhappy enough to get on your case about it I wouldn't care to guess.

Similarly, if your marginal rate at maturity is lower than in the previous years then you'll be less than happy at having overpaid.

You're right: It is all a bit of a mess.

[GeoffF100]

I have just spoken to my young neighbour, who, as it happens, is a tax adviser for a firm of accountants. The bottom line is do not worry, what I am doing is OK. She says that they just declare tax the on the compounded up interest when the bond matures. Nonetheless, HMRC will accept that I have already paid tax on the earlier years' interest, if I just pay tax on the final year's interest when the bond matures. As long as it tallies they will be happy.

As long as the total tax paid on it tallies they will be happy, as not only will you have you paid the correct sum amount of tax but you'll have paid a good amount of it years in advance of when it was actually due.

If, OTOH, your marginal rate at maturity is higher than in the previous years, either 'cos your situation changed or 'cos the govt changed income tax rates and/or allowances, then they will be less than happy as you'll have underpaid the correct total amount. Whether they'll be unhappy enough to get on your case about it I wouldn't care to guess.

Similarly, if your marginal rate at maturity is lower than in the previous years then you'll be less than happy at having overpaid.

You're right: It is all a bit of a mess.

My understanding is that HMRC will be happy. I will have paid my tax correctly according to the legislation it seems. Actually, the total of all the interest payments will be less than the compounded up interest that I am paying early, but my tax payments will be discounted from what they would have been at maturity by the interest rate of the bond. I expect that HMRC is allowing the concession of paying tax on maturity because the system is such a ghastly mess.

I think that my income is more likely to increase rather than decrease, and I doubt whether tax rates will come down either, so paying earlier is probably good for me. It is certainly tidier to be consistent.

[GeoffF100]

Getting them online is more or less normal behaviour, but I'm pretty sure all of my savings banks provide tax certificates (online), or as some call them Interest Statement for Tax Year xxxx.

Yes, for the last tax year, I was getting Interest Statements for all the term accounts that were open at that time. Nonetheless, an Interest Statement is not a statement of tax deducted (i.e. Tax Certificate), because none was deducted. They do not explicitly tell me that tax is due, and it is now clear that I can wait until maturity if I wish.

[mc2fool]

Actually, the total of all the interest payments will be less than the compounded up interest that I am paying early, but my tax payments will be discounted from what they would have been at maturity by the interest rate of the bond.

Uh? I don't see how that comes about. The total interest at maturity is, surely, the sum of all the annual interest along the way. Yes, the annual amounts will increase across the life of the account, but the end total will be the same either way: you put £x in and got £x+i out, and as long as the same marginal rate is applied along the way, and at maturity, the end total of tax will be the same.

[mc2fool]

Getting them online is more or less normal behaviour, but I'm pretty sure all of my savings banks provide tax certificates (online), or as some call them Interest Statement for Tax Year xxxx.

Yes, for the last tax year, I was getting Interest Statements for all the term accounts that were open at that time. Nonetheless, an Interest Statement is not a statement of tax deducted (i.e. Tax Certificate), because none was deducted. They do not explicitly tell me that tax is due, and it is now clear that I can wait until maturity if I wish.

They can't know if tax is due 'cos that depends on your personal situation, and just because the amount of tax deducted is zero doesn't mean either a Tax Certificate or Statement of Interest is not a statement of tax deducted!

It's true that "Interest Statements" aren't strictly Section 975 Certificates but having rechecked my aforementioned savings accounts, Marcus (an s.957 tax certificate) and Charter & Paragon (interest statements) all have identical information: Gross Interest, Income Tax deducted (zero), and Net amount paid or credited. It's all you need really.

[GeoffF100]

Actually, the total of all the interest payments will be less than the compounded up interest that I am paying early, but my tax payments will be discounted from what they would have been at maturity by the interest rate of the bond.

Uh? I don't see how that comes about. The total interest at maturity is, surely, the sum of all the annual interest along the way. Yes, the annual amounts will increase across the life of the account, but the end total will be the same either way: you put £x in and got £x+i out, and as long as the same marginal rate is applied along the way, and at maturity, the end total of tax will be the same.

Yes, you are right, e.g. assume £100 is invested in a 10% 2 year bond:

Interest in year 1 = £10. Capital becomes £110.
Interest in year 2 = £11. Capital becomes £121.
If I pay 20% tax annually the total tax is £2 + £2.20 = £4.20.
If I pay 20% tax on maturity the tax is also £4.20.

I am just paying the tax earlier than I need to. I have not really thought out the implications. I have opened a lot of new bonds recently. I could defer the interest until maturity for those. My fear is that if I then switch to an investment that forces me to pay tax every year, I will get two lots of tax in one year and blow the standard rate band. (I have a five year bond ladder.) I will have to think about this.

[GeoffF100]

It's true that "Interest Statements" aren't strictly Section 975 Certificates but having rechecked my aforementioned savings accounts, Marcus (an s.957 tax certificate) and Charter & Paragon (interest statements) all have identical information: Gross Interest, Income Tax deducted (zero), and Net amount paid or credited. It's all you need really.

That is what threw me. If 20% was deducted, I clearly had to put it on my tax return. I thought that with 0% deducted I still had to put it on my tax return.

[AleisterCrowley]

Well , if you have 20% or 0% deducted it still needs to go on your return as savings income as you may need to pay more if you bust the limits and possibly are a higher rate taxpayer

Any idea why they have changed the NSANDI rules anyone? It just adds more admin hassle for me

[GeoffF100]

Well , if you have 20% or 0% deducted it still needs to go on your return as savings income as you may need to pay more if you bust the limits and possibly are a higher rate taxpayer.

Not necessarily. See "SAIM2440 - Interest: taxation of interest: when interest arises" linked above. Nonetheless, you can declare it. Again, see above. I still do not now how SAIM2440 came about.