Opinion Former Article

Couples should declare interest on joint savings

The Low Incomes Tax Reform Group (LITRG) is calling on couples to declare money held in joint accounts otherwise they might face penalties for non-disclosure, and has suggested to HMRC ways they can prevent people falling unwittingly into non-compliance in the first place.

HMRC started to use information about interest provided to them by banks and building societies in tax calculations and PAYE coding notices in late 2017. Although these data include details about interest received on accounts both in sole and joint names, HMRC only use details of interest on accounts held in sole names when calculating tax liability. If individuals receive interest on a joint account, they need to advise HMRC to ensure that it is included in their tax calculations, otherwise they may face penalties and interest on the tax due if HMRC later discover that the taxpayer should have paid tax on this income.1

LITRG recommends to HMRC that messages concerning interest received on joint accounts should be included within the Personal Tax Account, on PAYE coding notices and on P800 tax calculations, to prevent people incurring, unwittingly, penalties for non-disclosure.

Most people have a personal savings allowance of £1,000. Provided that the interest they receive in the tax year is less than that, they have no further tax to pay on the interest. LITRG’s concern is that couples with non-retirement savings may receive interest that exceeds this allowance and therefore may be caught out.

With a joint bank account, two or more people are able to access the money in the account. A joint account lets people manage any money they share with their partner, housemate or others.

There is no separate space on a tax return for declaring interest on a joint account. Taxpayers should add their share of any interest on a joint account to the full amount of interest earned on any individual account/s. If not in Self Assessment, people have to contact HMRC, such as by telephone or letter, and tell them about the interest. For many people, this will then be taken account of when working out their PAYE code.

LITRG Chair Anne Fairpo said:

“Everybody who has taxable income is responsible for disclosing it to HMRC. People must not assume that HMRC have all their information on their savings; equally, they must not imagine that HMRC have not noticed their joint accounts. If HMRC discover that a taxpayer has failed to tell them about some taxable income, they can face penalties and interest on top of the unpaid tax. Penalties can be as high as 100 per cent of the unpaid tax liability.

“We call on HMRC to ensure that it communicates effectively that while it is obtaining and making use of some information from banks and building societies, it is not automatically including interest received on joint accounts in tax calculations.”

As a result of changes to the way in which savings income is taxed,2 in order to ensure that individuals pay the correct amount of tax on their interest, it is necessary for HMRC to obtain details of interest received by individuals from banks and building societies. The onus is on the taxpayer to advise HMRC separately of any interest they receive on a joint account and to ensure the interest is included in their tax calculations, in addition to ensuring that details of interest they receive in their sole name are correct. HMRC can use sophisticated analysis systems to identify where there is a high risk of an under declaration of income. Where careless behaviour has resulted in a taxpayer failing to declare all their taxable income, HMRC can ask for any unpaid tax that relates to the past six years.

Notes to editors

1.       LITRG has published a news article to highlight the fact that HMRC make use of information they receive from banks and building societies. This is to help them collect any income tax that is due on interest individuals receive. Click here.

2.       Since 6 April 2016, banks and building societies have paid interest to savers without taking any tax from it (they have paid it gross). Most people have a personal savings allowance of £1,000. Provided that the interest they receive in the tax year is less than that, they have no further tax to pay on the interest. Higher rate taxpayers have a reduced personal savings allowance of £500 while additional rate taxpayers have no such allowance. When deciding which amount of personal savings allowance they might be entitled to, Scottish taxpayers need to use UK rates and bands rather than those for Scottish income tax.

3.       Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)

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