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In UK when filling-in self-assessment, HMRC is asking for amount of interest received during the tax year. But bank charges are not taken into account.

See example here: my bank charges me £5 ever month for my account. In return I'm getting some interest. Let's say over the financial year I've earned £100 interest, but paid £60 in bank charges. So my net profit from my capital is £40.

But HMRC ignores bank charges and thinks that my profit from my capital is £100. What are their reasoning in this case?

For my business I can put bank charges as expenses. Why not for personal finance?

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    You might have noticed that you also can't put the costs of your housing or communiting costs down as expenses against earnings.
    – CMaster
    Commented May 17, 2016 at 18:52
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    @CMaster That is a very fair point!
    – trailmax
    Commented May 17, 2016 at 21:13

4 Answers 4

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When I left the UK four years ago, free banking is still an option and I'm pretty sure it still is. Therefore, you have chosen to have a bank account with a 5.00/month charge.

In return for this charge, you will be eligible to receive certain benefits. For example; reduced borrowing costs, discounted mortgage rates, free overdraft on small amounts, "rewards" for paying household bills by direct debit, and things of this sort.

Amongst these benefits may be preferential savings rates. However, from HMRC's point of view it will be the extra perks you are paying for with your monthly charge. You have chosen to pay for the account and HMRC is not interested in how you choose to spend your money, only in the money you earn.

While I agree with you that it does have an element of unfairness, the problem is how would you divide the cost amongst the various benefits.

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  • Indeed I have chosen to pay fiver a month for benefit of having higher interest rate because most of savings accounts give you negligible interest ~0.5%~0.9%. I consider this fiver to be an expense in exchange for the interest. Indeed there are other benefits like cashback, but for some reasons these are also appear as gained interest. Point is - for my business I can put bank charges as expenses, why not for personal accounts?
    – trailmax
    Commented May 17, 2016 at 17:47
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    Unfortunately, what you consider it doesn't affect what the government considers it.
    – keshlam
    Commented May 17, 2016 at 19:38
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    If you take your logic to its ultimate conclusion, if I earn £100,000 pa and spend £99,000 of it, I should be able to offset that expenditure against my earnings and only pay tax on £1000 pa. Sorry, but that's not how the UK tax system works. If the tax rules for "your business" are more favourable, you should have taken that into account in your tax planning. Tax avoidance is perfectly legal, though tax evasion is not.
    – alephzero
    Commented May 17, 2016 at 20:21
  • @alephzero You may wish to re-tag your comment for user "trailmax". I think the point he is making is that paying for a better savings rate may be considered a legitimate expense against the income earned, roughly analogous to the way trading costs are netted out of capital gains in share trading. I agree with you that personal expenses should not apply here.
    – not-nick
    Commented May 17, 2016 at 21:00
  • @alephzero no evasion here and really, 20% tax from £60 will be £12 relief - would not make much difference over a year. No need to get worked up about it. I just want to understand if government is doing what I think it is doing.
    – trailmax
    Commented May 17, 2016 at 21:12
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Because your profit from the capital IS 100 quid. Capital gains is not like running a business and doesn't come with tax deductions. It's up to you to pick saving scheme that maximizes your profit (either via low costs or highest possible rate).

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    Do you have any reference/document to support/explain your point? Capital gains is not like running a business, but £60 paid in bank charges are for service of the capital and possibility of earning interest. So why it is not like running a business when real expenses do exist?
    – trailmax
    Commented May 17, 2016 at 15:50
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    Capital gains doesn't come into this at all. Interest on bank accounts is taxed as income, not capital gains.
    – Vicky
    Commented May 18, 2016 at 9:00
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In the UK, if your savings interest is below the £1K savings allowance for basic rate tax payers of £500 allowance for Higher rate. Providing you are within these limits which is more often than not then the interest is not taxed anyway.

If you are unfortunate in being over these allowances then perhaps you should be looking at more tax efficient wrappers such as an ISA for your money and investing.

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  • Indeed it is now. However, when the question was asked that was not the case.
    – trailmax
    Commented Jan 30, 2020 at 10:00
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All the examples given to justify the tax fail to take into account the situation, namely that one of the reasons that the bank is able to pay the interest that it does is because of the charge that it levies. So there is a direct correlation. Natural justice seems to me to be on the side of the complainant. It would be better if the bank concerned (we all know which it is) would levy no charge, and reduce its interest. However, in their favour, they do pay cashback and this can significantly mitigate the cost of the charge and the cashback doesn't have to be declared.

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  • I'm not the downvoter, but this answer doesn't seem to address the question at all... also, this question is almost 3 years old and has an accepted answer already so doesn't add any value.
    – dvniel
    Commented Mar 18, 2019 at 12:00

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