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bigduckontax, Accountant
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I'm struggling to understand how the 2016 changes to the way

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I'm struggling to understand how the 2016 changes to the way savings interest is taxed will affect me. I have the new tax code for 2016-17 and have tried to understand the calculation using the HMRC website, but am totally confused.
My income is in three parts:
Government State Pension
Civil Service Pension
Income from fixed term savings - ie no access until end of term.
It is the savings interest I have a problem with. Currently this income is paid net of tax at the end of the term. As I understand the new 2016 regulations, the income will be paid gross, but the tax due is taken from my other sources of taxable income by adjusting my tax code?
This means that I will be paying additional tax from my regular income, but will have no access to the interest I've earned because the investments are fixed term with no prior access until the investments mature?
The consequences of this, assuming the above is correct, is that my regular income will now be reduced due to tax being taken from interest I have no (immediate) access to. A situation I cannot resolve until investments reach maturity - some of which are 3 years away.
Is this correct? Do I have to accept a reduced level of income until I can access my savings and apply them differently?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. The normal procedure is for you tax code to be adjusted to collect the tax due on your State Pension which is taxable, but paid gross. You should check the coding each and every time a change is notified as HMRC are notorious for getting them wrong. My initial tax code has bee wrongly calculated these last 20 years and you could have knocked me down with a feather when they actually got it right first thump for 15/16, well nearly! If the tax code is correct then you should be tax neutral at the end of each tax year. From 16/17 tax year the first 5K of savings interest will be tax free and deposit takers will be paying interest gross, I checked with my Building Society the other day. However, if your income is above GBP15600 there is an adjustment to the tax free savings income entitlement. MoneySavingsExpert.com gives the following explanation: 'If you earn £12,000 you're £1,400 above the standard personal allowance, so the £5,000 savings allowance is reduced by that sum, giving you £3,600 more you can earn in savings and it still be tax free.' It's a classic Alice Through the Looking Glass 'Jam tomorrow, jam yesterday, never jam today.' I do hope that I have been able to shed some light on the position.
Customer: replied 1 year ago.
Hello Keith - Thank You for your response, however it doesn't seem to address my basic question.This is that I believe under the new arrangements the taxman will take additional tax from my regular Civil Service Pension (CSP) to cover the tax due on gross interest from investments - even though I can't access this interest because it is in fixed term bonds to which I have no access until maturity in several years time.By my calculations I will receive around £100.00 less per month income from my CSP.My new tax code for the 2016-17 year is K308 (which seems right given my own figures and calculations) so as I understand it this means an amount (the amount whereby I exceed my tax free allowances) is nominally added to my CSP and then the whole amount is taxed at 20% - hence the "loss" of £100 per month compared with existing rules.I find it hard to accept that the new arrangements mean I have an immediate deficit in ready income, and that I am paying tax on income I cannot (yet) access!If you can confirm my understanding of the situation I shall be spending some time berating officialdom for effectively reducing my immediate income and taxing me on money I haven't yet received!
Expert:  bigduckontax replied 1 year ago.
It is, I agree unfortunate that you are being taxed on interest you cannot access, but that is merely how the tax system works. HMRC will need to recover the tax due on this notional income and will probably do this by reducing your code number thus increasing the tax take from your occupational pension. The whole system was designed to bring taxation of savongs closer to ISAs [tax free] savings for basic rate taxpayers.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3598
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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