My Bank gives Rewards – how are they taxed? Reply

It seems crazy to me that banks give rewards and charges at the same time, wouldn’t lower charges be better?

The rules for Interest are covered by https://www.gov.uk/apply-tax-free-interest-on-savings

These rules include the Personal Savings Allowance and means (provided you aren’t an additional rate tax payer) you could get up to £1000 tax free (£500 for higher rate tax payers).

The problem with rewards is that it depends on what they are as to how they are treated

  1. If the reward is interest (calculated as a rate on the balance) then it should be paid gross, it will be savings income and eligible for the Personal Savings Allowance (PSA)
  2. If its a reward for depositing a certain amount each month or other activity then its not savings income and the bank should have deducted 20% before paying it under the annual payment rules. You will need to report this on your Self Assessment or R40 to reclaim the tax, this income is not with the PSA rules.
  3. If there is reward not related to the balance and there are also charges and fees on the account, it won’t meet the criteria for an annual payment and the bank won’t deduct 20% at source. You will need to declare it as ‘Miscellaneous  Income’ on your self assessment return

steve@bicknells.net

 

Have you declared tax on your bank rewards? Reply

Pretty Young Woman Withdrawing Money at the Bank Machine

In April 2016 the PSA (Personal Savings Allowance) came into force.

The PSA applies to all non-ISA cash savings and current accounts, and will allow some savers to receive a generous portion of their interest totally free of tax.

95% of savings will no longer be taxed.

Basic rate taxpayers will receive £1,000 in savings income tax free, higher rate taxpayers get a band of £500 and additional rate tax payers get nothing.

Sounds great but the key word is ‘Interest

Some banks have been giving ‘Rewards‘ instead of interest and these fall outside of the scope of the new PSA and as such will be taxable, for example..

Click to access benefits-document.pdf

http://www.barclays.co.uk/PersonalBanking/P1242689794073

https://www.halifax.co.uk/bankaccounts/current-accounts/reward-current-account/Default.asp

Currently Cash Back on spending doesn’t count as a reward so that is ok and not subject to tax.

I think this situation is confusing and could lead to taxpayers incorrectly failing to declare rewards thinking that they were interest!

 

steve@bicknells.net