Pensioner bond tax chaos for 900,000 savers

uP TO 900,000 savers face a tax nightmare as NS&I three-year pensioner bonds come to an end.

Money Mail has had letters from readers worried about their tax position on interest from National Savings & Investments 65+ Guaranteed Growth Bonds, which can reach £1,248.64.

These deals were sold from January 15, 2015, to May 15, 2015, and were popular for their 4 pc interest rate on up to £10,000.

But the tax quirks on this ‘simple’ account are complex.

Your tax position rests on how much you earned from other savings, pensions and other income in the three years — and when the bonds were bought.

The upshot is, most pensioners won’t owe any tax. But some may have been overcharged.

To work out if you have been billed correctly, remember that interest was added annually over the three-year term. You were liable to tax on the interest at the time, although you could not access the cash penalty-free until the bond matured. NS&I reported the earnings to HM Revenue & Customs annually.

If you signed up at the bonds’ January 2015 launch, you’ll have seen £1,162.11 interest on the maximum £10,000 holding: £320 in the first year, £412.80 in the second and £429.31 in the third.

But if you bought after April 5, 2015, your interest is £1,248.64: £400 in year one, £416 in year two and £432.64 in year three.

The difference is due to tax changes that came into effect in April 6, 2016. Since then, NS&I and others have paid interest without deducting tax.

Those who bought before April 6, 2015, had their first interest payment added before the new rules came in. This was added after 20 pc tax was deducted.

The next two came under the new scheme, so no tax was taken off then.

If you bought after April 5, 2015, no tax has been deducted.

The good news is that, since April 2016, a new personal savings allowance tax break has let basicrate taxpayers earn £ 1,000 interest annually without paying tax (£500 for higher-rate payers, nothing for top-rate payers).

Crucially, if you had other savings income that took your total over the £1,000 limit, HMRC says it automatically adjusted your tax code to collect any tax due. But it admits only estimating the interest, meaning deductions may have been too high. Remember, you didn’t owe any tax if your total earnings were within the personal allowance: £ 10,600 for April 6, 2015 to April 5, 2016 (£10,660 if you were born on or before April 5, 1938); £11,000 from April 6, 2016 to April 5, 2017; £11,500 for this tax year; and £11,850 for the next. And if your total income was low, less than £17,500 at current rates, you shouldn’t pay tax on the savings interest. This is due to a £ 5,000 savings interest allowance for lower earners. If you were a non- taxpayer in the 2015/ 2016 tax year, you can reclaim the 20 pc taken from your bond interest that year. Fill out Form R40 from the HMRC website ( gov.uk) or call 0300 200 3300. sy.morris@dailymail.co.uk